Schroders Global Investor Study 2018: People significantly underestimating cost of living in retirement

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Retirees underestimating cost of living in retirement.

Key insights include:

  • Australians expect to spend an average of 39% of their retirement income on basic living expenses — but the reality is retirees require 58%.
  • Working Australians feel they should be saving 15% of their current income for a comfortable retirement, but they only save an average of 12%.
  • Australian retirees currently live off 52% of their final salary as an income. This compares to 71% of final salary which working Australians feel they will need in retirement.
  • The Schroders Global Investor Study 2018 — which surveyed more than 22,000 investors from 30 countries — has revealed a significant gap between expectations and the financial realities of a life in retirement.

The survey, which was compiled in March and April this year, included detailed responses from more than 1,200 Australians. The key insights are below.

Retiree living expenses

People in Australia expect to spend an average of 39% of their retirement income on basic living expenses, but according to the retired Australians who completed the survey, the reality is that they require 58% of their income to be used on living expenses — not including travel or healthcare. This is the fourth largest gap between expectation and reality in the world, behind South Africa, Sweden and the US.

 

 

Retirement income

Australians closer to retirement who are aged 55 and over may also be in for a shock by expecting too much retirement income. They predicted that they will need an average of 71% of their current salary or income to live comfortably in retirement. The reality is that Australian retirees are, on average, receiving only 52% of their final working salary annually.

Retirement adequacy

The data also shows that in Australia, 61% of retirees state they do not have enough, or could do with more income to live comfortably.

Retirement savings gap

While the superannuation system helps Australians reach a level where respondents said they saved an average of 12% for their retirement, they also said they believed they should be saving 15% of their income. This is a significant savings gap between what people feel they should save for retirement and what they actually save.

Lesley-Ann Morgan, Global Head of Retirement, Schroders, commented: “There is a real danger that people globally are underestimating the proportion of their retirement income that will need to be allocated to basic living expenses and the amount of money they will need to live comfortably in retirement, particularly in the current environment of low returns and increasing inflation.

“There is no magic wand for people. To avoid facing challenging financial circumstances on retirement, they need to recognise the need to start saving as much and as early as possible.

“Perhaps as a result of not having enough in retirement, our study showed that retirees were continuing to invest, and this often represented a larger amount than they expected prior to retirement.”

Graeme Mather, Head of Distribution for Schroders Australia, said: “It’s reassuring to see that Australians are saving on average 12% of their income for retirement, largely as a result of our compulsory retirement saving system, but there is still a savings gap to overcome to ensure people are better prepared for retirement.

“There are clearly a number of lessons we can learn from our elders where the experience of a retiree differs from what working Australians expect in retirement. Saving as much as possible from as early on as possible can help alleviate this gap between expectation and reality.

“Retirees continue to be active investors in retirement and it is important that the retirement investment solutions available to them can help them meet their expectations and importantly avoid surprises.

“People are living longer so it is encouraging to see investors continue to invest actively into retirement to ensure that their savings last.”

See the full Schroders Global Investor Study 2018 ‘Saving for a comfortable retirement’ report.

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