50% of Australians not ready for retirement: Are you?

By Liz Maroney, Westlawn Wealth Adviser
SMSF Specialist Advisor™
23 February 2017

While many of us still in the workforce dream about the day when we can retire and start a new life of leisure (with some travel thrown in for good measure), the reality for nearly one in two Australian households may be very different, new research from the Commonwealth Bank has found. 

Similarly, owners of small and medium enterprises (SMEs) appear equally unprepared for retirement. A survey by accounting firm Bentleys reveals less than half are confident they’ll be able to afford the lifestyle they want in retirement. 

Retire ready … or not?

According to Commonwealth Bank’s Retire Ready Index, released earlier this month, almost 50% of Australian households are not expected to have enough wealth to retire comfortably. And if the Age Pension is excluded from the calculation, the percentage of Australian households ready for retirement drops to just 17%.

And those who can rely solely on their super to sustain a comfortable lifestyle in retirement, well, that number falls even further to just 6% of Australians.

When including the Age Pension and superannuation assets only, 40% of Australian households will be retire ready according to the index.

Perhaps unsurprisingly, single women are less ready for retirement (22%) than single men (31%). Discussing the research results, Linda Elkins, Commonwealth Bank’s Executive General Manager, Advice, stated that:

“Women have longer life expectancies and therefore need more assets to maintain a comfortable level of retirement.

“Women also generally have lower retirement savings due to career breaks during their child-bearing years and lower average income levels throughout their working lives.” 

So, just how much will you need to secure a comfortable lifestyle in retirement?

Based on calculations by the Association of Super Funds of Australia (ASFA) at the time of the release of the Retire Ready Index, the average Australian couple would need $59,619 pa to live comfortably, while singles would need $43,372 pa.

How you can be retire ready

  1. Define your retirement goals. Do you want to retire early? Do you want to travel? How much money will you need to do the things you hope to do in retirement?
  2. Reduce your debts. When you retire, you’ll want as little debt as possible, ideally no debt at all. So, in the years leading up to retirement work at reducing your debt as much as possible. That includes credit card debt … and yes, your mortgage too.
  3. Select suitable investment options within your super fund to help reduce market volatility and maximise investment returns over the longer term.
  4. Build your retirement savings by making extra contributions to your super. You may also benefit from generous tax concessions available through super.
  5. Create an effective estate plan that takes into account your assets, family situation and the needs of your intended beneficiaries.
  6. Seek professional advice on how the changes to superannuation on 1 July 2017 will affect your retirement.

Are SME owners on right retirement track?

Less than half of SME owners (48%) feel confident they’ll be able to afford the lifestyle they want in retirement. That’s according to Bentleys September 2016 Voice of Australian Business Survey.

Only 57% reported having a strategy in place for their retirement.

The survey of Australian SME owners across all industries and regions asked how they would fund their retirement. The most common answers included:

  • 38% of those with a plan will rely on savings
  • 35% will use income from rent or other investments
  • 28% said the Age Pension
  • 21% will downsize the home, and
  • 20% will use proceeds from the sale of their business.

The survey found that only a quarter (24%) of respondents have a self managed super fund. Of those, only 34% involve a financial adviser in the running of the fund.

Industry super fund REST has also been looking into how business owners plan to fund their retirement in its Bridge the Gap report, published in November 2016. REST’s research found that 55% of business owners surveyed consider the sale of their business to be important in funding their retirement.

SME owners also consider ongoing dividends from their business as another important avenue to fund their retirement. Some 55% rated it as important, with 27% rating it extremely or very important.

However, as we reported back in August 2015, in Succession is secret to SME success, according to the MGI Australian Family and Private Business Survey released in June 2013, a staggering 75% of business owners admitted their business was not sale- or succession-ready.

See also Plan well ahead to maximise sale price of your business.

Talk to us about getting retire ready

To ensure you’re ready for retirement, contact Liz Maroney today:

Copyright © 2017

About the CBA Retire Ready Index

The CommBank Retire Ready Index is a comprehensive analysis of the retirement savings and resulting retirement incomes of Australia’s working population. It sets out the percentage of the population aged 25–64 who are projected to have sufficient assets, including superannuation, personal wealth and Age Pension entitlements, to meet a comfortable level of retirement. CommBank has partnered with Rice Warner, one of Australia’s leading and most respected actuarial firms, to develop this report.

Using data from over 10 million member superannuation accounts from Rice Warner’s Super Insights along with personal wealth data from the ABS, the index provides a comprehensive picture of the wealth of the Australian population.

About the Voice of Australian Business Survey

Survey of 314 micro, small and medium businesses across all industries and regions conducted by Empirica Research in September 2016.

Westlawn Wealth Adviser, Liz Maroney is a ...

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Liz Maroney and Westlawn Wealth Management Pty Ltd ABN 32 124 861 409, Authorised Representatives of GWM Adviser Services Limited ABN 96 002 071 749, Australian Financial Services Licensee, 105 -153 Miller Street North Sydney NSW 2060.