IN BRIEF
- Retiring Australians could need $400,000 of superannuation to live comfortably, according to a study.
- Gender inequity, investment strategies and market health are major factors in superannuation depletion.
Retirees with a superannuation balance of under $250,000 could exhaust their savings within a decade of comfortable living, something that could have particularly dire consequences for women, new research has found.
The study from the Monash Centre for Financial Studies suggested that, amid market instability and a rise in both life expectancy and living costs, many retirees were facing difficult choices.
Associate professor Ummul Ruthbah, one of the authors of Comfort or Collapse: Why Balance Size and Design, Not Just Returns, Decide Retirement, said the report's findings were "sobering".
The research identified three main factors for superannuation sustainability: the size of one's starting balance, the mix of equities and bonds in an account and the sequence of market returns within the first year of retirement.
It found that, regardless of portfolio design, "the chance of sustaining income rises to near certainty" if one's super balance is above $400,000.
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Super gender gap has 'profound implications'
The report has added weight to concerns about a gender gap in the size of superannuation accounts.
Women approaching retirement age may have up to 30 per cent less superannuation than their male counterparts. On average, women have a balance of $212,000, compared to $283,000 for men.
Ruthbah said the super gender gap has "profound implications for retirement adequacy and policy design".
"For median female retirees, even a balanced portfolio still carries material chances of exhaustion within a decade, while men with median savings face far more secure outcomes," she said.
Ruthbah said the research emphasises the need for "measures to boost women's superannuation savings".
"Whether through targeted contribution incentives, reforms to address career breaks and pay disparities, or enhancements to the Age Pension safety net."
CEO of not-for-profit Women in Super, Jo Kowalczyk, told SBS that entering retirement with lower superannuation balances means women are vulnerable to financial shocks and "the risk that their savings may not last as long as they need them to".
She said the findings are particularly important as they show the "real world consequences of the gender super pay gap".
"For many women, lower lifetime earnings, time spent out of the workforce undertaking unpaid caring responsibilities, and the ongoing gender pay gap continue to have a lasting impact on retirement savings."
"This research reinforces why closing the gender super gap matters. It is not simply about the size of a superannuation account balance — it is about ensuring women have the financial security, independence and dignity to enjoy a comfortable retirement."
Tips for super sustainability
The study found superannuation depletion isn't impacted by portfolio design and challenged assumptions about retirement investment strategies.
Trinh Le, the report's other author, said: "Mixed equity-bond portfolios, which are investment strategies combining stocks (equities) and bonds (fixed income), provide the most consistent outcomes for modest balances".
"All-equity strategies deliver higher average ending balances but carry sharper drawdown risks, while bond-heavy portfolios virtually guarantee capital erosion when withdrawals are set at comfortable levels," Le said.
The report also concluded that, regardless of investment strategy, a small super account won't sustain high spending in retirement.
It also warned that if those with large accounts invested their money too conservatively, inflation would shrink its value, and suggested moderate spending could be the sweet spot.
"Our study finds that when retirees target a moderate level of spending, rather than a more comfortable lifestyle, the portfolio is more likely to remain sustainable over ten years, regardless of the asset allocation," Ruthbah said.
"Another important consideration is maintaining some exposure to equities. Our capital market assumptions suggest that bond-only portfolios are unlikely to generate optimal returns relative to the level of risk taken over the long term."
The study analysed 11 portfolios that ranged from 100 per cent equities to 100 per cent fixed income, in increments of 10 percentage points. Portfolio balances ranged from $100,000 to $1 million, and focused on projected 2025 mean and median balances for Australians aged between 63 and 67.
A matter of timing
The timing of one's retirement could also be crucial, with the research suggesting that retiring during a market downturn came with real costs.
For instance, someone who retired in 2022, when the market delivered negative equity and fixed income returns, was likely to be significantly worse off after a decade than someone who retired a year later in 2023 — even when their superannuation balance and investment strategy are the same, the report found.
The report suggested that, during periods of market decline, retirees should avoid, postpone, or reduce withdrawals from their superannuation and consider a flexible withdrawal strategy that adjusts to market conditions and personal needs rather than a fixed withdrawal rate.
The federal government's financial literacy tool, Moneysmart, suggests growing superannuation savings through voluntary contributions, investing, salary sacrificing, downsizer contributions if selling a home, and exploring options for government co-contributions.
Disclaimer: The information in this article is general in nature and is not intended as financial advice. You should consult with a licensed professional to make the decisions that are right for you.
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