Only half the Australian working population is ready for retirement – and the numbers are worse for women.
A retirement readiness index compiled by financial advisory company Mercer after looking at 18 different funds, suggests Baby Boomers are the least prepared generation in terms of superannuation.
The much maligned Millennials are not doing so well either.
The study by Mercer, released at the Association of Superannuation Funds of Australia Conference on the Gold Coast, finds that just 41% of women and 53% of men in Australia are heading for a comfortable retirement.
But the rest are not. While voluntary contributions can significantly boost future financial security, only 16% of Australians contribute this regularly.
This is the first time Mercer’s Retirement Readiness Index has been used to conduct a study of this kind, comparing the retirement readiness of industry funds, corporate funds, and master trusts to the average of Australia’s working population.
Pay was a key determinant to members’ readiness, with 94% of those earning over $100,000 heading for a financially secure retirement. However, the super fund association’s standard for what annual income equates to a ‘comfortable lifestyle’ is relatively low – $59,160 for a couple.
Gen X is the most prepared generation, outperforming all other generations with higher incomes and higher levels of voluntary contributions.
Mercer Senior Partner, David Knox said the study should act as a warning to both funds and members to act now in order to ensure the financial security of Australians in the future.
“Using the Retirement Readiness Index, funds can easily identify the least prepared, and help them be more active where it counts. The correct investment strategy choice is crucial to ensuring financial security in retirement. Members must also consolidate their accounts and be strongly encouraged to regularly make voluntary contributions,” said Dr Knox.
For example, a 35-year-old on a salary of $50,000 and an initial super balance of $30,000 who starts salary sacrificing $100 per month (2.4% of salary, or a coffee per day) will increase their expected retirement income from 98% to 103% of the “comfortable standard”.
This is an increase in projected age 65 balance from $248,129 to $290,558 (an increase of 17%).
A 50-year-old on a salary of $60,000 and an initial super balance of $100,000 who starts salary sacrificing $200 per month (4% of salary, or a coffee and a muffin per day) will increase their expected retirement income from 99% to 103% of the comfortable standard. This is an increase in projected age 65 balance from $230,485 to $266,015 (an increase of 15%).
“Super funds play a critical role in recognising where retirement income gaps are occurring and encouraging underprepared members to actively take control of their financial future,” said Dr Knox.
“Funds must also consider what retirement income is most appropriate for each of their members. Will a high income couple really be happy living off just $59,160 per annum in retirement?”