The Australian savings myth

21 February 2019

Shaun Haden, Wealth Adviser |

Most Australians believe they are not saving enough to meet their income needs throughout retirement, driven by worries of longer life expectancies, large medical expenses in later years of life, slower income growth and the possibility of lower investment returns going forward. In our experience however, most do not need to sacrifice lifestyle today in order to maintain lifestyle in retirement.

A study by Grattan Institute, a non-partisan think tank, shows that most Australians can expect an income in retirement that is sufficient to maintain pre-retirement lifestyle, despite alarm bells being rung by the superannuation industry and some politicians.

A major driver of the study’s outcome is the fact that we spend less as we get older. Research conducted by Milliman Group, one of the world’s largest actuarial firms, shows a gradual decline in expenditure post retirement, accelerating once 80+ years old. The graph below is based on spending of Australian retirees, drawn from actual bank account and credit card data:

Annual spending ratio by age bracket for top 25% wealthiest Australians

We often hear the counter argument that health care costs significantly increase as we age and that we need to save money to account for this. However, data shows that out of pocket medical costs only increase marginally, as our public healthcare system and private health insurance industry foots the majority of the cost.

Marginal increases in medical expenditure are more than offset by reduced spending on eating out, transport, recreation and household furnishings. The graph below shows expenditure in different categories over time:

Household annual expenditure of people born between 1930 & 1934

So why are we being told that we are not saving enough? Most superannuation ‘retirement calculators’ assume that we will continue to spend the amount we are spending now, for the rest of our lives, increasing each year by a couple of percent to account for inflation. As you can imagine, you would need a much larger bucket of money to fund an ever increasing level of spending. Take these calculators with a grain of salt - they are designed by super funds who benefit from an increase in superannuation savings.

Our experience, with clients over the past 30+ years we have been in business, is backed up by the research – our clients generally spend less as they get older and some in their 80’s has saved more money than they will be able to spend in their lifetime. 

At BDO, we don’t mind the size of a client’s super balance – our job is to help them maximise lifestyle through all stages of life, which may involve fewer sacrifices than most anticipate. Consider what the important things in your life are and what you are foregoing now to save for tomorrow, without knowing whether you actually need to.

Speak to a BDO Private Wealth Adviser today to discuss forecasting your retirement situation to get a clear view of your financial position in the future.

Daley, J., Coates, B., Wiltshere, T., Emlsie, O., Nolan, J. & Chen, T. (2018). Money in retirement: more than enough, Grattan Institute.
Gebler, J. (2018). Analysis: Retirees’ spending falls faster than expected into old age, Milliman Group.

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The information in this document reflects our understanding of existing legislation, proposed legislation, rulings, etc., as at the date of issue. In some cases, the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. The information is not, nor is it intended to be, comprehensive or a substitute for professional advice on specific circumstances.

The financial product advice or information in this document is of general nature only and has not taken into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision on the basis of the advice above, a prospective investor needs to consider, with or without the assistance of a professional adviser, whether the advice is appropriate in the light of their particular investment needs, objectives and financial circumstances.