The Fear of Running Out of Money in Retirement

In the midst of yet another review on superannuation, this time looking at the retirement income system, it is important to capture the views of the people the system is meant to help. National Seniors Australia, in conjunction with Challenger have recently prepared a research report to help better understand how Australian retirees (and older Australians not yet retired) feel about life and their finances in retirement.

Lack of confidence in retirement
The latest report, Retirement Income Worry. Who worries and why? indicates that the system has more work to do to provide retirees with more confidence in retirement. The report found that most older Australians (53%) are worried about outliving their savings, with women (59%) more worried than men (47%).

This high level of worry contrasts with global comparisons that rate Australia as one of the best retirement income systems in the world. This isn’t simply a case of Australia being the best of a bad lot. The underlying issue is that despite the many strengths of Australia’s super system, people worry whether they have enough, particularly approaching retirement.

Figure 1: Do you worry that you might outlive your savings and investments?

The report delves into the underlying factors leading to worry. Gender differences are significant. Women are more likely to worry about running out of money in retirement than men. And, by ‘running out of money’, people are talking about their super. While the age pension is a backstop for people who run out of super, respondents were worried that it might happen to them. Living solely on the age pension is viewed differently from having your own money to spend.

“Most older Australians (53%) are worried about outliving their savings, with women (59%) more worried than men (47%).”

People with less than $500,000 were more likely to worry than those with more. There are more women with lower balances as a result of broken lifetime work patterns, part-time arrangements and the gender pay gap. The report also notes that women with higher balances were more likely to worry than men with the same balances.

Longevity differences not addressed
The difference in life expectancy could also impact the level of worry in women. On average, women live 2-3 years longer than men, and half the women who turn 66 in 2020 are likely to live into their nineties.

The evidence points to the need to improve the super system to keep it world leading. The current government focus on designing better retirement income products will help.

Better adjustment in retirement
On the positive side, once people retire, they report less worry. People tend to adjust to what they have and to actual retirement. It implies that some people are working only because they are worried about not having enough.

The survey also reinforces the idea that retirees know that super is for spending. Almost two-thirds of the respondents who had been retired for at least five years expect to spend most of their savings over the next 20 years. Super was created as a consumption-smoothing mechanism. Participants defer wages as a sacrifice during their working lives, so they are entitled to spend those unspent wages (compounded many times over) on themselves in retirement.

Summary of major results
In brief, the degree of worry about retirement income was:

  1. 68% higher in those not already retired. Previous work has indicated that people adjust to their actual circumstances in retirement, whether they planned for them or not.
  2. 65% higher in those who have less than $500,000 in savings. This is as expected, since they may not have the money to pay for a ‘comfortable’ retirement.
  3. 53% higher in those who expect their main source of income in retirement to be the age pension. This is expected because it is a minimum basic income with accompanying worry about ‘making do’.
  4. 47% higher in women. This is after taking out the effects one or more of the previous three factors above and may be associated, in part, with expecting greater involvement in caring roles and a real risk of outliving their partners.

Does access to financial advice reduce this worry?
The report states that while it is likely that more money at the start of retirement provides the opportunity to have less decline in savings, this is not always the case. For those who don’t manage this, they worry about outliving their savings and investments. Good financial advice is something that could help maintain or increase savings. Respondents were asked if they had ever received advice about retirement and if they had in the prior 12 months. A total of 74% said they had received advice at some stage, and of these, 60% had received advice in the previous 12 months. The statistics showed the group that had received advice were meaningfully less worried about their retirement.

The research statistics in the report highlighted the conclusion that people were far less likely to worry frequently if they had sought financial advice and actually implemented the advice recommendations, particularly as a means of ensuring that they had a regular source of income to maintain financial independence for later in life.

Despite having one of the more successful retirement income systems by world standards, Australians of all ages still worry about having enough money in retirement.

The largest effect is a 68% higher risk of worry among those who aren’t yet retired. Anticipatory worry carries an excess of worry on top of what people who are already retired worry about. The report concludes from the research that this unnecessary concern can be reduced by seeking out high quality financial advice.

The full report can be downloaded from the National Seniors website (

What do you think?
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