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Time to smash the retirement nest egg - but how?

Remember Easter 2022 when passengers were in long queues at capital city airports, waiting hours for flights, some of which were cancelled?

And the reward for their inconvenience and patience? They were slammed as not ‘match fit’ by then Qantas CEO, Alan Joyce.

Well, we know how that ended, don’t we? Those passengers were match fit, but the airlines had quite a few issues that needed sorting. The service that passengers were paying for just wasn’t up to scratch.

This analogy comes to mind during the current ‘super wars’. The current debates have been further heightened by a call for submissions to the Treasury Discussion Paper, Retirement phase of superannuation. Many submissions have found their way into media releases which have been duly reported across our media. The statements vary, but underneath many of the claims, is a subtext that retirees are somehow … again … at fault.

This time it’s for underspending. It seems, like airline passengers, retirees just aren’t match fit. Which must make the average retiree’s blood boil!

That’s because, for the past 30 or so years (since compulsory super was introduced), they have been told by the banks and super funds to save, save, save their money in super. They were led to believe that a ‘comfortable’ couple’s retirement required a fully paid-off home and about a million dollars in savings. And that socking money into their ‘nest egg’, then preserving it at all costs was their primary mission.

Evidence suggests that many retirees have responded to this exhortation by making minimum withdrawals from their super accounts, leaving large balances for their families to enjoy after they’ve departed. But now we see industry exhorting retirees to get over their so-called ‘frugality’ and start to spend, spend, spend. No wonder many retirees are so ‘disengaged’ as industry politely terms it. That’s an understatement.

How did we get here?

How can we reframe the discussion in a way that supports retirees?

Here’s a brief backgrounder and some starting thoughts on how we can help retirees to smooth their income across their two- or three-decade long retirements.

The rise of the ‘nest egg’

Back in the early days of super in the 1990s, the advice within the retirement income industry was largely driven by major insurance companies: NRMA, AMP, MLC and AXA to name a few. Their advertising campaigns sold retirees on a goal of super large nest eggs – literally – with images of golden eggs in golden baskets. The industry then had a robust army of financial planners who took commissions and managed these ‘nest eggs’.

The heyday of commissioned planners did not last, and the Royal Commission into banking and finance, which reported in 2019, largely shut the door on this planning and saving model.

But somehow these persistent images of nest eggs and piggy banks became code for retirement savings. Sitting beneath this was a strong message based on fear and guilt:

  • You won’t have enough
  • You need to save harder
  • If you don’t reach the $1 million target, you’ll have a miserable retirement

And these subliminal messages die hard.

To be fair, a quiet revolution has taken place since the early days of compulsory super.

Many planner conflicts have now been removed or modified. Industry funds have gained strength (some might say too much). Today they are behemoths, but their core proposition that ‘From little things big things grow’ is a much more realistic strategy for most retirees when compared to forceful suggestions that you’ll need a million to live a decent retirement.

The question is, how could an entire industry push ordinary Australians to save, save, save, without an eye on the day when this clearly discernible demographic spike of baby boomers would quickly reach Preservation Age?

And how could the financial services industry be seemingly unaware that the constant ‘save for your nest egg’ refrain would become so ingrained and self-defeating?

And that retirees with modest means can’t simply flip a switch at age 60, 65 or 70 and embrace a spending mode?

How to turn on the tap

What are the answers to encouraging reasonable spending patterns in retirement? In short, how does government now ask retirees to turn on the tap of spending their super?

There are a few issues to tackle here but the first has to be to agree on the facts. Until now there seemed to be general agreement that retirees were underspending. But in more recent times we’ve been told retirees spend all they have!

The first important fact is that compulsory super did not start until 1992, and then it was at 3% of income, not increasing to 9% until 2007. As a consequence, retiring Australians will not have received the benefit of a meaningful super contribution over the 40 years of their working life until the mid-2040s. So for most older Australians and current retirees super savings tend to be modest, if they have any at all. As the Productivity Commission found in 2019 around 20% of workers have no super at Preservation Age and then only around 40% still have super when eligible for the Age Pension. Those with smaller balances will often take a lump sum to pay off debts, undertake a renovation or purchase a new car or white goods in preparation for retirement. So it’s unsurprising that many current retirees have no super when they die.

This view of super spending, that retirees are inclined to spend themselves out, is reflected in recent reports from Association of Super Funds Australia (ASFA) and the newly convened Super Members Council (SMC).

However, as the RIR found in 2020 those fortunate enough to have enjoyed a more substantial rate of super savings over their working lives tend to die with most of their savings intact. By adhering to minimum drawdown levels, superannuants tend to underspend in retirement – spending the income rather than the capital they have put aside all their working lives to provide a good standard of living in retirement, Consequently, they are leaving what is often an unintended bequest to future generations.

Apart from moderating language about saving, there are other ways to encourage retirees to more efficiently access their savings.

Providing support to better understand key triggers and decision-making points in their retirement journeys makes a lot of sense. This means financial literacy support through basic explainers of key rules including Age Pension entitlements, preservation age, retirement income streams, account-based pensions, even MySuper options. When you are in an industry long enough you start to accept jargon that is confusing and meaningless to the broader population. But everyday retirees need more help here. This is a big shout out to the Federal Government in particular which has been missing in action on the need for retirement financial literacy support across the 30+ years of mandated super.

Understanding that your savings continue to grow while you draw a retirement income stream also helps. If a single female has, say, the median amount in super (female, $204,000) and withdraws a pension top up of $1200 a month, then the balance at the end of her first year will be $204,000 - $14,400 = $189,600. But when we apply a conservative 7% earnings to the balance (last year balanced funds delivered 9.6% according to SuperRatings) then the balance at the end of the period would be at least $202,872, so the withdrawals are largely mitigated. If this retiree wanted more money for renovations or lifestyle requirements, she might have confidence to access her funds, knowing that she is not in danger of running out.

It's not just what we say, it’s also how we say it

Much of the old school retirement saving/spending discourse has had a hectoring tone. You must save more. You’ll run out. Here’s an impossible target for savings, but you’re on your own when it comes to getting there.

This tone persists in the chiding of retirees for being too frugal. ‘They’ are not spending enough, the headlines admonish. ‘They’ are passing on wealth to the next generation instead. ‘They’ haven’t put enough aside for aged care. And then there’s the suggested rainy day money target of three months’ salary…

These are impossible targets for many retirees. For most, in fact.

They have led to a predictable response, ‘Don’t keep telling me what to do, show me my potential strategies instead…’

Stepping through the options

Is it time to give retirees a break from jargon and step them through their options in a more positive manner? One suggestion is for funds to give individual members a retirement income projection from day one so that they anticipate getting the super back in terms of an income. Not just a bundle of savings.

There are many other ways of helping retirees to help themselves without berating them, for starters, by providing relevant and timely information and guidance. So as older Australians join the queue for the long-haul journey of retirement income management, let’s stop telling them that they’re not match fit for not spending quickly enough. Instead let’s scrutinise what industry and government are doing to support them to get on board in the most effective way.


Kaye Fallick is Founder of STAYINGconnected website and SuperConnected enews. She has been a commentator on retirement income and ageing demographics since 1999. This article is general information and does not consider the circumstances of any person.


April 16, 2024

Hi Kaye,
I like the idea of super funds being able to give you an income projection rather than a lump-sum projection but only if most of your retirement savings are in a super fund.
What about retiree’s like us who have multiple types of savings.
My wife worked part time in retail and I’ve been self employed since the 1980’s we never earned a lot and super wasn't always available or tax-effective, we saved as much as we could and invested in shares and a house and now we are juggling various source's of income, we have a part OAP, small super pension, bank interest, dividends and selling parcels of shares and we are lucky to own a house, that after 34 years has become quite valuable, so we may look at a reverse mortgage in the future.
I’m sure someone reading this will say “ what’s the problem “ well, the problem is it's all very complicated and the regulations around pension eligibility, lump-sum contributions to super and capital gains tax issues don’t help, also I am worried that if something were to happen to me, I’ll be leaving my wife with a financial jigsaw she doesn’t like engaging with.

What I’d like to see is some form of annuity (poss. govt. guaranteed) to lump all these assets into a unit fund to simplify withdrawals, in this way, even if the fund only yielded a conservative return of 5%, most of us would have more than ample income and still leave a large bequest to pass on as we wish.

April 16, 2024

"some form of annuity (poss. govt. guaranteed) to lump all these assets into a unit fund to simplify withdrawals":

The best government guaranteed life annuity is the Commonwealth Age Pension. Tax free 7.8% return on cash capital efficiently invested on home improvement or otherwise disposed where Assessable Assets is in the Asset Test taper range.

Cash flow from non-home assets in addition to full Age Pension:
Return 5%, Inflation 3%, Death 20 y, Assessable Assets $451,500;
= PMT((1 + 5%) / (1 + 3%) - 1, 20, -451500, 0)
= $27,457.28 / y

Steve Dodds
April 07, 2024

Whilst I agree 100%, a real issue is that as well as the nest egg analogy, people are led to believe that they should become far more conservative as they approach and then enter retirement. Target Date funds epitomise this.

But if you do this, you will never earn the 8-9% required in the examples shown.

The biggest risk is taking too little risk.

Peter Vann
March 12, 2024

I 100% agree with this quote at the end of your article: “One suggestion is for funds to give individual members a retirement income projection from day one that they anticipate getting the super back in terms of an income. Not just a bundle of savings.”

Below is an extract from my submission to the recent Super in Retirement review that expands on your suggestion.

“Frame superannuation in terms of the retirement objective

If we understand that the purpose of superannuation is to deliver Australians with income for a dignified retirement, then we should be framing key member communications in terms of this outcome, namely their
Retirement Paycheque.
This can be achieved by providing retirement income estimates (including age pension estimates when eligible) to all members based on the data that their superannuation fund has available. For example, member’s annual statement could commence with words, such as:

Your superannuation has a good chance of providing a fortnightly retirement income of $4,400.

and these words could also be a headline banner when a member logs into their superannuation account. Without wishing to state the obvious, members shouldn’t need much financial literacy to understand a salary or wage.
Members would see their superannuation presented in terms of a key purpose of superannuation, their expected retirement paycheque; why have a purpose if individual members aren’t informed of its expected outcome?
Provision of retirement income estimates applies to BOTH accumulators and retirees. Accumulators have more time to act, potentially improving their retirement outcomes, and retirees will develop an understanding of their trade-offs to better manage retirement outcomes “

My submission also discusses the dangers of using deterministic retirement income projections; the “good chance” probability is based on not running out of money before you die hence includes investment volatility and mortality probabilities.

Yes, many industry participants portray retirement planning as (too) complex but be careful when you ignore the impact of investment volatility. On complexity, below is another extract from my submission to the Super in Retirement review.

“Whilst working around the superannuation industry I have seen complexity being raised time and time again forming a barrier hindering provision of pragmatic solutions for retirees. I have also observed that these barriers are used as excuses for lack of action by some industry participants. There are many examples in other industries where complex systems are solved and can be presented in easy to understand language to non-experts, e.g. Google maps as a car navigation tool.”

Also, more information can be found in an article a colleague and I wrote in Cufflinks almost a decade ago,
“Retirement myths doing more harm than good”
Peter Vann and Chris Condon, 12 September 2014

March 12, 2024

Hi Peter, the suggestion of letting super savers know how their money translates into income from day one is very clever - and owes its genesis to Deborah Ralston who was one of the panel on the Retirement Income Review. I do wonder if we have paid enough attention to this review and its findings. We seem to be in handwringing, wheel reinventing mode a lot of the time instead? What say you?

March 12, 2024

"letting super savers know how their money translates into income":

That is the earnings in their super account. Withdrawals from super accounts are capital.

Best let super dis-savers know they are spending their capital.

Peter Vann
March 13, 2024

That suggestion pre-dates the Retirement Income Review but many superfunds seem to balk at it, or doing it properly. Hopefully enough voices create a clarion call resulting in action. I await the deliberations of the current Super in Retirement review.

March 11, 2024

People make things far too complicated,and then try to add more complication. They look for things to be frightened of. They terrify themselves at the thought of paying tax ,or losing a bit of pension.The whole thing is so simple if you don't listen to any of the noise.All you need is the ability to multiply a number by 2.How long the share price takes to double,and how long your shareholding takes to double using the DRP.

Super drawdown is easy,work out the % age of what you take out,then add on the % age growth rate,you are unlikely to run out of money. $400 K in super,draw out 9% ( for me /us) to replace the pension we don't get.The growth rate is 9% so my fund tells me,an average over 37 years or so.After doing that very simple maths after 10 or 11 years the "nest egg" is down around 10 to 15%,and is probably going to have a decent sum left after death.

Outside of super then multiply by 2.Understand that compounding takes time,30 years is good,40 years is excellent. Two companies,CBA and NAB, 1000 shares in each of them in 1991 cost ~ $12 K . Follow the crowd and borrow $12 K to buy a car,or plough a lone furrow and borrow $12 K to "have a go".I'll pick it up as I go along.

So start @ $ 6 a share,double the price every 12 years,and double your shareholding every 12 years. Share price goes 6. 12. 24 and after another 6 years to make it to 30 years you are half way through a doubling period. So after 30 years $36 a share.Get it roughly right and let everybody else get on with fooling themselves that it has to complicated.Let them fool themselves that the maths is complicated ,then they can get it precisely wrong to 3 decimal places.

After your 33 year period of compounding ( get it roughly right ) retire on 30/6/2024. You have ~ 6,000 shares in each of them at whatever the price is on that date.Nab might be close to $36 a share,surprisingly accurate ,CBA thankfully shot the lights out and went great.

Every day of that 33 years gone people will tell you you got it wrong,how come everybody else didn' t do that. Every day into the future they will tell you you got it wrong.You haven't allowed for thousands of hypotheticals,thousands of but look over there's.You haven't allowed for what they do in some country you have have never heard of that is way beyond the black stump,you don't live there,and there is almost no chance that will ever live there.You must select one "fact" from their tax system or social security system and convince yourself that one "fact" has proved everything that you want to see,so, Why doesn't Australia do that?

I would worry if people agreed with me.

Women in the workplace and less super.Very easy to solve.For the 4th time perhaps. 1,000 shares in Westpac in 2002 when I rounded it the wrong way and said $12 a share,it was $13 a share. Wait for 30 years,use the DRP,and have around 6,000 shares in WBC in 2032,at whatever the price is,and whatever dividend income they pay.

The financial industry is there to tell you that it is all too complicated,so give as much as you can to them so they can clip the ticket.The 'crowd' are there to repeat what the financial industry tells them,and to try to add more complication to fool themselves they know what they are doing.

Perhaps it is summed up nicely by a few Buffett / Munger quotes

The role of the financial industry is to get you to do the exact opposite to what you should be doing. Short version,invert,always invert.

The idea of wealth is to make as much money as possible,most of the people on the planet can't even work that out.

Variation on the above ,the idea of wealth is to make as much money as possible,not lose as little as possible.

My own,I wish I was paying $1 million a year in tax ,no financial worries at all if I was.Paying a large sum in tax still worked out well though.Surprisingly to most people,you aren't living in poverty if you don't get any pension.You aren't living in poverty if you pay a lot of tax.You aren't living in poverty if you don't have a CSHC card.The chance of running out of money is virtually zero.

After decades of not following the crowd ,not listening to all the noise,not thinking,how can I make this more complicated.Not thinking this is what the govt tells me to do so it must be right,life turned out great.Retirement proved to the most amazing thing on the planet.

Dean Carnaby
March 12, 2024

You have absolutely nailed it.It all revolves around the magic of compound interest

March 11, 2024

Again, looking at super in isolation from the rest of the Pillars for retirement. The state pension is very generous and, if super balances are below $1m combined, is a key objective for retirees. The state pays for lifestyle and super is considered the inheritance. The debate needs broadening around the intersection of home ownership, the state pension and, aged care subsidisation. The most sensible government initiative around this has been the Home Equity Access Scheme. Finally a recognition there is value is a property that can be used to support lifestyle and eventually, is repaid. Currently a burden on the public purse but, in time could be a real boon. As the main residence seems to be sacrosanct, a different way of utilising it would be to consider a mandated use of the Scheme where asset values reach a certain level. If those that didn't want this impost, they self-fund and the "hoarding" issue is alleviated. Many Australians are well placed to self-fund their retirement but the government largess remains too much of a carrot to ignore. I agree with some of the sentiment in comments here around the days where self-sufficiency was the standard. These days, it has been replaced by the "entitlement mentality" and "what is the government going to do about this that or the other problem "I" have?".

March 12, 2024

Hi Kim, these thoughts are really useful - but I do believe that there is one glaring hole in government performance in this space, and that's financial literacy. We have had campaigns on seat belts, skin cancer, smoking and gambling - where is the slip, slop, slap of retirement income literacy? I fear hell might freeze over first?

peter c
March 11, 2024

Part of the issue is that (at least for men), the minimum withdrawal rate at age 60 and 65 is too low. It should start at 5% at age 60, 6% at age 65 and all other ages should be increased by 1%.

The other change that should happen is that all earnings on amounts beyond 1.9 million should be taxed at 30% and all amounts on earnings under 1.9 million where the super member has reached age 65 should be taxed at 20% if not turned into pension phase. (Turning 65 is a condition of release).

There would be an exemption if at the end or the year a members total super balance is under $25,000, in which case it can still be in accumulation phase and still be taxed at 15% on earnings.

These changes will encourage people to take their super once they hit 65 as a pension and to stop hoarding their wealth in a low tax super environment. It will also bring super back to its original intent and discourage its use as a low tax way to build up an inheritance vehicle.

March 11, 2024

That's all good and well, however they would need to add a condition of release, that is if your Super Balance is over $X amount, you can withdraw those excess amounts regardless of preservation age.

Pete K
March 10, 2024

Great Article Kaye, so good in fact that I'm going to subscribe to your web/newsletter. What often gets left out of these discussions, is that retirement assets in super, rental properties, shares, etc (We have all these) is OUR money! It's there because we worked very hard, took risks, paid off huge debts, forewent short term gratification in return for long term gain, in order to enjoy our remaining time and be independent of the vagaries of changes and decisions made by governments. Our comfortable retirement will be paid for from the rents and dividends without any cost to the rest of the community. In fact we will still be paying some tax. And yes we will very likely leave a substantial inheritance to our children. The bulk of this btw, has been achieved in the last 25 years so we can't be accused of "intergenerational theft" either. Yet we are considered "old (in our 60's) rich #@&+s", who should support the economy by blowing our dough. Apart from some Australian and overseas travel and other interests, we will be volunteering and contributing our time and experience to good causes in our community. We are aware of how fortunate we are to live in Australia, but it is the way it is now as a result of generations of hard working, self sufficient people who deserve just a little respect for what they've achieved. We'll spend our money as we well choose, thank you!

March 10, 2024

I recall advising on Super prior to 1990. Back then, only people over 40 took super seriously, as they were quite rightly focused on eliminating their non-tax-deductible home mortgage first. And for most of them, looking back, that home mortgage has proved to be an excellent investment. Compulsory Super then came in at 3%, so it didn't bother younger workers. Plus, the big super contributions came in after 2000, when Peter Costello introduced the TTR / large tax-free non-concessional contribution scheme (that I successfully helped convince Treasury about at the time). However, SGC super it is nearly at 12%, and it is becoming a problem for young homebuyers today. It is seriously eating into their take-home pay creating cost of living issues. So, we now have issues about "not spending enough super", in contrast to other individuals having to wait until 60 until they can pay their home mortgage off via a TTR Pension.

Senator Andrew Bragg's concept (that has come from an actuary who was around before 1990) of using super as a home mortgage offset account, tracked via Superstream, which can then be contributed back to super long term, is highly innovative. It can help get the primary home paid off much faster, and if a retired couple doesn't end up with more than $500k super, the Commonwealth Govt Aged Pension makes up the difference. Because the needs of young homeowners have been so neglected, to the point of some young families being forced to live in tents & cars, Bragg's concept will happen in the not-too-distant future. This is why he is now the Shadow Minister for Home Ownership. The self-focused nature of the super fund players is now coming back to bite them. And most cash-strapped young people will redirect their super to their home mortgage after they make the legislation happen at the ballot box. Problem solved.

March 10, 2024

"Problem solved.":

Apart from microscopic real interest rates resulting in telescopic home prices.

March 11, 2024

Steve, a good idea to give young hope. Gets off ground if young voters understand if simple instead of mess beyond mosts' comprehension.

March 11, 2024

I do think that ppl need to be encouraged to do the tax maths and optimism their concessional contributions towards the first home SSS. Not fantastic bit at least a step in the right direction.....

That said housing stock is still an issue at most levels.

March 10, 2024

Good article and comments. Thank you. Clearly a lot of retirees are wary of running down their pensions too much, to allow for the eventuality of living longer with associated expenses.
Isnt this just good planning?
Maybe instead of retirees being berated to spend more, perhaps a few of these retirees could advise government on how to spend less/live within mean/plan for the future in a sustainable manner

March 10, 2024

Excellent comment!

March 11, 2024

I agree !!

March 11, 2024

Agree. If 5 various incomed retirees, varying age, 1 at least 80yrs, high falut'n and low for different views, $4,000 pocket money for 12wks,won't have time to spend plus 12wk lower energy bill at home, cheap lodgings included on bus route for senior fare transport to office,Parliament House cafeteria evening meal to maintain promoted long - life diet not at restaurant prices--5-6pm is OK before dinner rush,1 x 4day w/end visit home when House not sitting with cheap fare as they great finding those, own lunch unless work meeting sandwiches saving leftovers for next day so no waste, open all hours as retirees love filling days plus nights when no sleep, trustworthy re security if in at 3a.m, bit of secretarial help fast typing of notes for efficiency and government terminology, they'll have it solved quicker than any Bill through both houses. Tax-free so no change of tax rate re allowances, fair to all 5. Worth heaps more, $4000 a token for gifted time when not otherwise busy as a service to country. Followed with second set of 10 new eyes (not a pun) over suggestions needing tweaks, that should do it. 10 clever minds free of clutter for about $140,000, even better, used to going to workplace to be present with no personal calls at work unless emergency.

Now form an orderly queue, no pushing....,........................

Peter 3
March 10, 2024

Some of you are talking as though a retirees money is public money and changing rules to force them to spend it. I'm 57 and looking towards being self funded with part time work at 60. I really don't need peole telling me how much I need to leave for my future generations when my wife and I kick the bucket. Too many rules.

March 11, 2024

Good point I agree Worked hard almost no super, acquired properties shares etc. No hope of a pension so will spend how I like and the government should be making it easier for self funded retirees as it doesn't have to support us in our retirement .

March 11, 2024

Peter 3, Agree. A natural saver before Super, can paper cracks in a crisis and a responsibility passed on to pass on what in family since 1870's safeguarded by each generation 'just in case a rainy day' as brought up to do with expectation to continue management of. They should have come up with alternative to Super and its' tax benefits as that's what gets to those who are not natural savers or things in way to prevent and those who have used super to save object to tax grabs 30 yrs on. Introduced to make us save as far down the world list then from memory.Maybe should have been a National Savings Scheme, more you save higher interest and a little less tax on National Savings income as the carrot, and easily arranged Loans to Govt with very lengthy periods offering stability and safety instead of this whole shaky industry grown up around Super of which few understand fully with many rules and changes and more worrying, warnings. Progressive 30 yr bonds passed after 2 prior generations held, interest paid private nursing home for mother, that's stability. On redemption we knew next step to take as always been. I am older but know exactly how you feel disliking the telling & tinkering going on, always on edge by "what might they do next" to any area, protecting what I don't really consider mine. Not silver spoon in mouth stuff just good yakka, investing, budgeting, saving and no tax avoidance all clear from 70 - 90yr old records. Why does it have to be so complicated?

March 11, 2024

It starts with taught their times tables and learning to visualise outcomes.....

As a society we have said for the last 30 years....every child wins a prize....those kids who didn't put in an effort....super...savings...investing.....still want their prize.

The nanny state is still offering prize for those that don't want to try, overall.

March 11, 2024

Everyone is different, I have millions in Super and genuinely believe I shouldn't be allowed to have as much as I have in Super

I can't take it out as I'm under preservation age so will continue to benefit from the tax advantage that Superannuation provides me.

George B
March 11, 2024

Generally speaking most people that have “millions” in super would have paid significant taxes on non-concessional contributions (even concessional contributions were likely taxed at 30%) so the so called “tax advantage in super” should more accurately be called a tax paid advantage (I personally know someone who has paid about $6m in taxes to have a similar amount in their super).

March 11, 2024

Who cares if you leave the kids an inheritance other wise they will never pay these exorborent loans off and can then contribute to their own super , the problem lies in the government trying to change the rules so they can fund their climate change rubbish and submarines, nothing to do with the fact that our super started in 1990 at 3 ridiculous %... and now they have such luxuries as paid child care & paid baby leave + now super added to it...and they need to tax our super to pay for it...

March 11, 2024

The government want money circulating through the economy supporting GDP and collecting revenue through the various taxed, charges and levies applied to the monies pathways.

Inheritance left to children and then used to pay off a loan gives little to the government and little to the bank.

A deposit is a banks liability, a loan is the borrower's liability.

March 09, 2024

I still feel the key missing element is some type of annuity that is based on typical balanced super fund type returns. As I understand it annuities providers are forced to invest in "safe" assets such as bonds, with commensurate lower returns to ensure the insurance company has enough assets to cover future liabilities. So the income from annuities seems to many underwhelming versus what their current super fund delivers as most of the value adders like shares are not part of the investment options for the annuity providers. But with annuities you have pooled risk (of longevity) and do get to draw down on your capital without the worry of running out if you live too long (thanks to those who don't last as long!). But until the govt can square the circle on riskier investments delivering returns people might be attracted to (as an annuity) versus the risk to the annuity provider of a market downturn limiting their ability to continue paying said annuities, it is an opportunity waiting for its time. There may be better ideas but for now some form of govt guarantee to cover (short term) losses on investments would seem the only way to make this fly. But imagine the boost to the economy if self-funded retirees found the confidence to spend not just their income but also draw down on their super balance with a half-decent guaranteed income stream for life.

March 09, 2024

There are products becoming available in recent years that more or less do what you wish. QSuper's Lifetime Pension and Challenger's Market Linked Liquid Lifetime annuity are examples. There are others and more will hit the market over the next few years I'm sure.

March 09, 2024

Ron Pascho
March 09, 2024

My wife is 76 and I am 83. She has no super and l have a balance of around $300,000 Because I do not believe that politicians of any party have any concern for the welfare of retired people because they are a small and dwindling demographic; they are without representation. We have become plaything of self serving polies, we are a manipulated group with superstation savings that belong not to us but to the self serving ruling political class.

March 09, 2024

"getting the super back in terms of an income. Not just a bundle of savings.":

What income?

Withdrawals from a Superannuation Disbursement account are capital.
Just like withdrawals from Savings account.

Nick Callil
March 14, 2024

This confusion in terminology is one of many issues holding us from achieving clarity in the retirement income system. 'Retirement income' refers to the amount drawn down from superannuation, together with any pension or annuity income, plus the government age pension. In particular, the 'draw down' component is the amount drawn down from super, whether sourced from the retiree's original capital or the earnings ('income") earned on that capital. The traditional capital vs income definition is not very useful in this context, as these are commingled and indistinguishable in most funds. Further, most retirees need to draw down both components, as retirement savings are insufficient to live only on the 'earnings'.

March 14, 2024

Dudley is confusing the issue by being pedantic and playing semantics.

Your capital in Superannuation earns interest/dividends and you take it to use as income, it has become income. It is no longer capital.

If you need to access the capital as well as the earnings, you're depleting the capital by the amount you take.

What others on forums confusing is Super Pensions and Aged Pensions during discussions.

March 14, 2024

The moment income is deposited in an account it becomes capital.

Age Pension in savings account.
Dividends in Super account.

Withdrawals from savings or super account is not income.
Being capital without gain it is not taxable nor non-taxable income.

Deeming withdrawals from super would be the first step to taxing them.

March 14, 2024

Income noun
noun: income; plural noun: incomes

money received, especially on a regular basis, for work or through investments.

If I have $2M in Super and it earns $100k and I take that $100k for living expenses, that is income for me.

If I take that $100k and another $100k from my Super I have received income and drawn capital. My Capital has reduced by $100k

March 14, 2024

"$2M in Super and it earns $100k and I take that $100k for living expenses, that is income for me.":

Income for super, withdrawn capital for you.

March 08, 2024

Retirees have two choices. Either spend too much and run out of money. Or spend too little and die with money. If retirees run out of money and become destitute the state will have to look after them and raise taxes or divert expenditure from schools and hospitals etc. So it's in the national interest for retirees to look after themselves financially and ignore the greedy ambitions of a parasitic industry that wants to exercise more control over how retirees spend their own money.

March 08, 2024

AlanB thats the point why most don't sell down the nest egg and remain cautious given you then have to rely on someone else to look after you. I'd go further however to suggest that lots of retirees are being rational in not spending more than they could. Good spending habits compound and become the source of much satisfaction via peace of mind in old age. Someone policymaker now telling you to do something different to what has given you this independence was ill-conceived within the initial draft of the RIC. I'd even go so far as to suggest it was someone that is removed from the day-to-day realities of commercial life (if you get my drift)

Jon Kalkman
March 08, 2024

We could start by educating retirees on the mysteries of the age pension. About two thirds of retirees depend on it for all or some of their income, but for many it remains a black box.

Retirees need to know that the family home is exempt from the assets test (but their super balance is counted) and therefore they should plan to to be home owners in retirement, to maximise their age pension, even if they use some super to achieve it.

Retirees need to know that the gifting rules mean that any gift of more than $30,000 in the previous 5 years is still counted in the assets test and will reduce their pension.

Retirees need to know that, once they are on a part pension, spending their capital (reducing their assets) will INCREASE their pension by 7.8%, ($7,800pa increased pension for every $100,000 spent on holidays or renovations). This is more than the income lost from the reduction in capital. In fact, a couple who own their own home can have $451,500 in assets in still receive the full pension which is $42,988 per year. These figures are indexed to inflation and will be updated on 20 March.

If the government is keen for retirees to spend their capital, it should start by educating retirees on how to maximise their age pension entitlement.

March 08, 2024

"We could start by educating retirees on the mysteries of the age pension.":

Direct those with adequate numeracy and computeracy to:

Isabel Dallas
March 08, 2024

Agree with this. A surprising number of younger Australians (in their 40s even!) believe that when they retire they will not be entitled to any age pension, either because the entitlement for their age group has already been scrapped or because they do not believe the government will continue to fund it by then. A reasonable number of people (often with perfectly adequate but misunderstood super balances) who are looking to buy a rental property feel they will need to do this 'to give them a passive income in retirement' - what super is already set up to do. Not only will buying a rental probably be a big financial impost, they will likely have reduced age pension entitlements, and what is it doing to the property market??

March 10, 2024

Yes Jon. And Centrelink have a part to play in educating part pensioners. Other than a few throwaway comment. Eg tell us if your assets change more than $2000 retirees do not receive any commentary on how the assets test system works. When are share values changed? When are income streams balances changed? To name just two. What’s more Centrelink never advise the pensioner when these changes are made.

March 10, 2024

Australia is the only major western society that doesn,t provide an unrestricted government pension to retirees such that they are forever under threat that politicians of any stripe will make changes to retirement savings, e.g Morrison,s walk back from Costello,s promise that investment in what were then called term allocated pensions which were locked away on the promise that only 50% would be counted as an asset for pension eligibility.
This caused many to lose their part pensions years in the planning so why would they trust pollies to not make other changes which would again target eligibility e.g the threat of including home values in the asset test.
Most western societies provide a basic income pension free of asset or income tests which allows retirees to spend savings knowing they will not have their basic needs affected should spending or other issues affect savings e.g recessions or nil interest rates for several years which recently severely affected their savings.
Providing education for retirees on how to maximise a part age pension would only work if the rules were locked in!. Anyone who has been through the onerous process of accessing a part pension via Centrelink in their declining years without the help of an expensive professional advisor would attest to this. Maintaining control of your super in retirement will always be an issue whilst the threat of changes continues.

Fund Board member
March 08, 2024

I wonder how many of those commenting here with disparaging references to "the super industry" actually know any senior executives or Directors/Trustees at super funds.
Because if they did they'd shut up. Everyone I know (and I'm well connected) is totally focussed on member outcomes, including working very hard right now on meeting their obligations to assist members approaching or in retirement.
As one of those industry leaders allegedly only interested in my own well-being I do appreciate balanced and helpful contributions to the important discussion from people like Kaye, but not from many of those who have taken to using Firstlinks as some sort of soapbox to let out their own uninformed aggression.

Let me now engage the discussion a bit. I appreciate the comment Kaye made that part of the education process for retirees is to help them understand that their balances can still grow even as they draw down. I believe that many are under the false belief that once they move funds into a pension account that the dollar amount is fixed, stops earning income and thus will run out rapidly. Explaining that a well invested fund in a diversified pool of assets that continues to include shares keeps earning income and experiences some capital growth, and that pays for your pensions without necessarily eroding capital, is going to be an important element of the advice that super funds need to provide under the Retirement Income Covenant. Kaye is right that too much fear has been generated over the years, but as ever, education is the key to overcoming such fear.

March 08, 2024

Former Fund Board member

No one is being disparaging rather being realistic in what the super industry can and can't do for its members. The super industry is NOW indeed focused on member outcomes as it's enshrined in an annual process therefore a mandatory regulatory obligation. And if you don't get it right, you also now get shamed by APRA in their quarterly data reporting. Therefore, this increased transparency makes it easy to tell who is sustainable and who is just smokes and mirrors (e.g. multi manager, life cycle, longevity overlay propositions with very limited live empirical evidence to back it up before Board approval).

However, this is not what this specific article is focused on rather it's about the policy setting of making retirees draw down a "maximise income" as one of the three core objectives in the RIC. My comments to AlanB hold and it will make very limited difference if you "educate" or "engage" members given its a clear and rational choice not to draw down at a rapid click. I'd be curious nevertheless to understand exactly how you think or expect "education" will impact their draw down decisions (other than a better understanding of their Age Pension entitlements)?

March 08, 2024

"part of the education process for retirees is to help them understand that their balances can still grow even as they draw down":

Requires either an "Authoritative Statement" or Numbers & Arithmetic.

To keep Disbursement [ 'Pension' ] Balance same or growing, after inflation, requires returns equal to or greater than:
To age 75 from age 65, 5% minimum withdrawal, ratio of 1 to 5% capital to withdrawal, where 4% is inflation;
= (1 + RATE((75 - 65), 5%, -1, 1)) * (1 + 4%) - 1
= 9.2%

With Disbursement Account returns of 9.2%, inflation 4%, To age 75 from 65, 5% withdrawal, Present Value is ratio of 1 to 5% capital to withdrawal, the Future Value is:
= FV((1 + 9.2%) / (1 + 4%) - 1, (75 - 65), 5%, -1)
= 1

Age Withdraw Real Return Real Balance
65 5% 5% -100%
66 5% -5% -100%
67 5% -5% -100%
68 5% -5% -100%
69 5% -5% -100%
70 5% -5% -100%
71 5% -5% -100%
72 5% -5% -100%
73 5% -5% -100%
74 5% -5% -100%
75 5% -5% -100%

Super Simple to add to a Superannuation Fund's web page.

March 08, 2024

Yes it's a valid line of thinking and there are already many very good calculators already available, including one that I've seen from HESTA that pre-populates data for members and prints out the results as you work through their retirement module. I'd be curious to understand if this still makes any real (versus marginal) difference BUT suspect it won't given most retirees will continue have a cautious predisposition.

And BTW I'm not sure should we put you in charge of explaining it to retirees (haha).

March 09, 2024

If you don't put your super in an income account but leave it to accumulated you can choose what percentage you withdraw. Why assume retirees don't know what they are doing?
Where is the constructive advice on alternatives that I expected in this article?

March 10, 2024

"If you don't put your super in an income account but leave it to accumulated you can choose what percentage you withdraw.":

After "condition of release", can withdraw from:
. Accumulation account;
.. $0 to account balance.
. Disbursement [ 'Pension' ] account;
.. Age based annual minimum withdrawal to account balance.

Until personal taxable income is greater than individual SAPTO tax free threshold, it is advantageous to keep super in tax free Disbursement account and receive annual minimum withdrawals.

Taxable income exceeding individual SAPTO tax free threshold is taxed at >= 31.5%:

Then it is advantageous to keep the right portion of super in Accumulation accounts.

March 10, 2024

"advantageous to keep the right portion of super in Accumulation accounts":

... because withdrawals add to personally help capital which will earn additional taxable income.

SMSF Trustee
March 10, 2024

Well Retired. A tax free pension account isn't an "income account" that contrasts with an accumulation account. They can be the same portfolio - mine is. No way would I not have the pension account at my age as the 15% tax not paid on those earnings is worth tapping into. If the cost is that I have to withdraw 5% then so be it.

March 09, 2024

Fund Board Member - Very good points. On a separate topic, are lifetime annuities on the radar ? It removes the ability to leave a nest egg (for the portion that is annuitized), but provides a guaranteed income stream (subject to interest rate and credit risk). There is some data from the US, that people who have Defined Benefit pensions or buy annuities tend to spend more, as it reduces their uncertainty around the future. I would have thought that the Super industry is big enough to reduce the perception of the annuity provider going bust. The larger industry funds could also potentially reduce the current cost structures, similar to what they have done in the accumulation market.

March 09, 2024

The government recently had open submissions for their better Superannuation plan.

Tied in with the recent, purpose of Superannuation discussion and terminology outcome.

Super Pensions and Annuities are mentioned naturally. The government notes that people are not using Super to fund their retirement as well as they could and are dying with the bulk of Superannuation unused.

They've acknowledged the many reasons for this from, wealth creation use of Super, longevity fears, potential aged care needs etc.

Australian Super have suggested making Super Pensions start automatically at 67, aligned with aged pension.

Keating's wording on the purpose of Superannuation was that it was to fund or part fund ones retirement and to create a pool of national savings.

Along the way, with the help of changes made, it became a wealth creation tool.

If the government have concerns about that issue, the Cap Super at $X amount. (Indexed)
Don't allow re contributions, if you take money out of Super, it stays out...

No one needs more than $3M in Superannuation.
You may want more, you don't need it.
4 or 5 percent drawdown on $3M is $120k and $150k respectively, this is sufficient to retire on, even more so if doubled for a couple with $6M.

Fund Board member
March 13, 2024

NKG, the annuities you have in mind operate like insurance policies. And there's the rub. While no one minds paying far more for car insurance than they ever expect to have to claim back, when it comes to retirement income annuities there's a great reluctance to do so.

As you've said, what happens with lifetime annuities is that you put the purchase price of the annuity into a pool of money from which payments are made to you and other annuity holders. But the payments stop when you die (with provision to continue for your spouse while they're alive). If you/your spouse die relatively early, then the capital that you haven't drawn remains in the pool to help fund others in their retirement. This is how they can pay reasonably high yielding amounts - they are priced on the assumption that there's a distribution of ages at which people will die and not everyone will live to the 'average life expectancy'.

Lifetime annuities are a great community solution to the retirement income conundrum. But sadly not many people are so community minded that they're prepared to save a 'nest egg' (to use the phrase in the title of the article) only to forfeit it if you don't live for a few decades in your retirement. The notion that it's my money and it should go to my estate is very strong.

The super industry has tried to work out how to make them appealing, but this has always been the main sticking point to their wide acceptance.

And as long as the government continues to provide some form of old age pension to those without enough to fund their own retirement completely, in effect that pension plays the role that you propose.

March 13, 2024

"And as long as the government continues to provide some form of old age pension to those without enough to fund their own retirement completely"

At Age Pension age+, keep expenditure rate less than Age Pension pay rate to 'never run out of money'.

Where too much capital to ever receive Age Pension then withdrawals at Age Pension rate for couple having 2 * $1,900,000 in Disbursement accounts and earning 0% real could be supported for:
= NPER(0%, 26 * 1653.4, 2 * -1900000, 1003000)
= 65.06 y

67 + 65 = 132 y. Oldest person to date lived to 122.

March 08, 2024

Good understanding of the key issues Kaye. However, the super industry has no vested interest in ensuring members draw down either. Forget education for the vast majority of people, given as you noted the complexity (and interactions with tax and social security). Adviser count of 16K don't deal with such clients which often gets missed in how this all plays out for most retirees. Super fund trustees are hamstrung by the Corps Law and ASIC not to infringe into the personal advice space which is exactly where it needs to be to make any difference. QAR review is expectd to improve but lets fact it FOFA has had systemtic impacts as the Hayne Royal Commission did as much damage as good.

So here is my thoughts on the most realistic way forward. Like MySuper for accumulation phase ensure super funds also have a default MyPension offer as part of the Retirement Income Covenant. This can be soft or hard default at retirement age and based on demographics of the fund itself. Sorry life insurers by longevity risk protection (via lifetime or deferred annuities) makes NO financial sense in most instances for the vast majority of member with balances below $500K given the IRR provided on these policies. Yes they may get a small kicker on the Age Pension due to asset test concessions BUT it also takes away the access when its needed most.

March 08, 2024

Funding age care is not an issue - esp with most of your savings locked up in the (family) home… Buy or rent …and care costs are capped and means tested. The average stay is only a few years too. Bigger issues are quality , your family to choosing the wrong cheap spot and getting them to visit

For those without home or savings …paid by govt

Jeff O
March 08, 2024

Amazing fear of residential aged care … and lack of information and recognition of available advice It’s not a market or govt failure - it’s your own behaviours …choice

Go do some shadow shopping, visit some providers and if need be get health and financial advice…

Otherwise you may well underspend , leave a bigger than desired bequest…or someone with your medical power of attorney may well decide for you

Peter 2
March 07, 2024

I agree with Peter (people with that name are always very intelligent) regarding the concern of costs associated with nursing homes. While it is fine to suggest that retirees should spend more, there is this great unknown that could present itself at some stage in the future that needs to be funded by an unknown amount.

Calculating how much you need for retirement is pretty easy. All you need to do is work out each of the following:
1. How long are you going to live for.
2. Inflation rate for the years from question 1
3. Yearly spend, adjusted using the results from question 2
4. Future returns from your investments
5. All unforseeable expenses in the future
6. Possibility and cost of entering a nursing home

It is not hard to see why those that have built up some funds for retirement may feel they need to be conservative with their spending when you consider the variables that they have to deal with.

March 07, 2024

This thought has given me encouragement to spend more: if you don't fly business class your kids will. And another person suggested.... if you don't fly business class that &^@(&*$& who married your kid will! It sounds a bit silly but it has encouraged a few people I know to increase their spending and live better.

March 07, 2024

Even when you do fly business class (returning from a $50k Antarctica expedition), bloody Qantas service is so poor/inconsistent that you wish you just took some pills, hunkered down in economy class and either saved the extra $5k+ for your next trip or paid a term's school fees for a grandchild.

March 07, 2024

My uncle used to talk about wanting to buy a new car but his dilemma was this overspending /underspending view. On the other hand, he used say, if I drop off the perch BOTH my kids will go out and buy new cars WITH MY MONEY! He never bought his new car….

Patrick Clarke
March 07, 2024

Always enjoy reading your articles, Kaye. The underspending challenge exists in other countries as well. Just seems to be bigger in Australia.

March 07, 2024

My parents living in Sydney can happily spend their super knowing they have over $2m equity in their family home. My in laws living in a large regional centre only have $500k equity in their family home, so are much more risk averse.
Any ideas how to get this equity issue into the focus of the people who make all the noise?

March 07, 2024

Above all else retirees want to live out their lives in comfort and certainty and not be hectored by non retirees largely in Canberra, who think they know better. The "comfort" will be determined by the Capital you have accumulated in Super, plus in many cases your Pension entitlement, versus your Cost of Living, your Health and your Age. In simplistic terms, that is "maths" that can reasonably be modelled including some "what ifs". My personal model goes to 100 and I have a high degree of confidence that I won't make it!

The "Security" concerns that most Retirees have, is about constantly moving Goalposts on both sides of the political aisle. If you save and plan according to one set of rules, it is simply wrong to confront retirees, now in their 70's or 80's, with yet another new set of rules where they have no financial ability to recover or change tack. As we age, we lose flexibility [in more ways than one] - with constant threats of change hanging over your head, it is no wonder Retirees hunker down!

March 07, 2024

'"maths" that can reasonably be modelled including some "what ifs"':

Pick the cell you guess to be closest to your likely future:

Minimum average net real total return per year required throughout retirement.

March 07, 2024

At commencement of retirement there are too many interacting non-linear factors affecting cash flow.
. could die today or 10,000 tomorrows later.
. real net rates of total return on invested capital fluctuate wildly and unpredictably.
. discretionary spending subject to whims, essential spending to market vagaries.

The degree of unpredictability is lessened when spending rate is a smaller portion of capital. Zero spending providing the most predictable outcome.

Old School
March 08, 2024

Nicely said Dudley. And, to generalise it and change the perspective a little. Try and over-save at least a little for a long term retirement and adjust your mindset to plan on under-spending a little - as our parents & grandparents advised. As a result, the financial aspects of life become much less time-consuming and stressful and you get to spend time on meaningful things rather than agonising over whether you should spend another few (or less) dollars on discretionary whims. So what if the price paid is leaving a bequest - that price brings a lot of peace-of-mind.

March 07, 2024

I agree, yep, aged care such as nursing home.
Those self funded retirees that are not spending up big are the responsible ones and are the heroes in all this discussion..

March 07, 2024

I agree with Peter. If there was some certainty about the cost of aged care then I would spend more. At the moment it's a complicated mess to plan for in the future.

March 07, 2024

A fear that keeps retirees like us from spending at 80 is the issue of what aged care may cost if either of us or both need care in a nursing home.
That uncertainty is balanced by keeping as much as possible in thenest egg.

March 08, 2024

The current rumblings about how aged care may be funded in the future only add to the complexity of any decision as to retirement spending levels.

It is completely rational to not expect any situation as it exists now to continue exactly as it is for the next couple of decades, and absent any specific information as to how it might pan out, make provisions to cover whatever it might be. It is even more rational when the situation is anchored to public funding and future political directions.

To expect retirees to spend more against this backdrop, based on the low level arithmetic of withdrawals vs. returns, is naive.

March 11, 2024

At some point rational governments might provide us with the ability to end our lives at our chosen time rather than force us to enter a nursing home only to end our days sitting in a corner with our tongues hanging out unable to know what day it is let alone to recognise loved ones. My brother died in a nursing home with Altzheimers for 2 years and I know he wouldn't have wanted this!. Some european governments have now legislated assisted suicide.

March 07, 2024

In practical terms income streams no longer have a minimum drawdown

Sure you will point to the percentage that needs to be withdrawn but I point to the fact that almost all under 75 year Olds can immediately put money into super

That needs to stop. At least once the cash is in the bank account and stays there then there is a chance of it being spent


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