Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 320

Off target: Mercer misses the mark on our retirement modelling

Grattan research has shown that the conventional wisdom that most Australians don’t save enough for retirement is wrong. The vast majority of retirees today and in future are likely to be financially comfortable. Our research seems to have come as a surprise to many retirement income researchers.

In a recent report, superannuation firm Mercer claimed Grattan’s retirement incomes research was ‘very misleading’ and was based on assumptions that were ‘not realistic’ for the average Australian. This Grattan policy paper shows that the Mercer critique of our work misses the mark.

A clarification on our approach

Some of Mercer’s claims result from an unfortunate misreading of our approach. Mercer mistakenly concludes that we model a decline in working-age incomes in the lead-up to retirement, when in fact incomes in our modelling peak just before retirement.

Mercer argues that retirement incomes should be assessed against the peak in earnings from ages 40 to 55, indexed forward by wages to age 67. But such a benchmark is 15% higher than Australians ever earn while working. It also ignores the fact that most Australians aged 40-55 are still incurring the costs of raising dependent children, whereas in retirement they are not. Spending by Australian households falls by about 15% between ages 45-49 and 60-64. Mercer’s work falls into the same trap as much Australian research on retirement incomes: it makes assumptions about what retirees need without looking closely at what they spend, or what they earn while working.

And Mercer’s preoccupation with ensuring all retirees, and especially wealthier retirees, are as well off in retirement as beforehand is a recipe for higher inheritances. Its approach would force low- and middle-income Australians to over-save for their retirement. Policy makers can justify lowering someone’s living standards during their working life only if they’re protecting them from even worse outcomes in retirement.

The real life experience

In contrast, our modelling is consistent with the lived experience of retirees today. Our 2018 Money in retirement report showed that most retirees today have a similar or higher living standard as they had while working. Most retirees today feel more comfortable financially than younger Australians who are still working. And retirees are less likely than working-age Australians to suffer financial stress such as not being able to pay a bill on time.

Retirement incomes policy needs to balance the trade-off between higher living standards when retired against lower living standards when working. And retirement modelling should reflect the reality of Australians’ spending needs, in retirement and beforehand. Unfortunately, Mercer’s critique of Grattan’s retirement research does neither.

 

Brendan Coates is a Fellow at Grattan Institute. This article is general information and not personal advice.

 


 

Leave a Comment:

banner

Most viewed in recent weeks

Australian house prices close in on world record

Sydney is set to become the world’s most expensive city for housing over the next 12 months, a new report shows. Our other major cities aren’t far behind unless there are major changes to improve housing affordability.

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

The super tax and the defined benefits scandal

Australia's superannuation inequities date back to poor decisions made by Parliament two decades ago. If super for the wealthy needs resetting, so too does the defined benefits schemes for our public servants.

Latest Updates

Planning

Will young Australians be better off than their parents?

For much of Australia’s history, each new generation has been better off than the last: better jobs and incomes as well as improved living standards. A new report assesses whether this time may be different.

Superannuation

The rubbery numbers behind super tax concessions

In selling the super tax, Labor has repeated Treasury claims of there being $50 billion in super tax concessions annually, mostly flowing to high-income earners. This figure is vastly overstated.

Investment strategies

A steady road to getting rich

The latest lists of Australia’s wealthiest individuals show that while overall wealth has continued to rise, gains by individuals haven't been uniform. Many might have been better off adopting a simpler investment strategy.

Economy

Would a corporate tax cut boost productivity in Australia?

As inflation eases, the Albanese government is switching its focus to lifting Australia’s sluggish productivity. Can corporate tax cuts reboot growth - or are we chasing a theory that doesn’t quite work here?

Are V-shaped market recoveries becoming more frequent?

April’s sharp rebound may feel familiar, but are V-shaped recoveries really more common in the post-COVID world? A look at market history suggests otherwise and hints that a common bias might be skewing perceptions.

Investment strategies

Asset allocation in a world of riskier developed markets

Old distinctions between developed and emerging market bonds no longer hold true. At a time where true diversification matters more than ever, this has big ramifications for the way that portfolios should be constructed.

Investment strategies

Top 5 investment reads

As the July school holiday break nears, here are some investment classics to put onto your reading list. The books offer lessons in investment strategy, financial disasters, and mergers and acquisitions.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.