Why many retirees could be losing income unnecessarily

Many older Australians do not understand how the retirement system works, leaving them drawing down less of their super in retirement and with a lower standard of living than they could be enjoying.

Retirees are often only drawing down the legislated minimum amount from their superannuation because they believe it is what the federal government recommends when it comes to retirement income.

Almost one-in-five of those drawing down at the minimum percentage each year from their super accounts are under the false impression it is a government recommendation.Credit: Sam Bennett

Under the law, those retirees aged under 65 must draw at least 4 per cent of their balance each financial year from their pension account, rising to 5 for those aged 65 to 74, and higher rates for higher age bands. There is no limit on how much can be withdrawn.

A survey commissioned by Super Consumer Australia of 1,100 Australians aged 65 and older finds 61 per cent of those who are drawing their super were drawing down at the minimum legislated rate last financial year.

Most of these retirees, 56 per cent, are confident that this minimum is sufficient for their needs. However, almost one-in-five of those on the minimum percentage each year are under the false impression this rate of minimum drawdown is a recommendation by the government.

“Our research clearly shows that the retirement system is not working well for everyone”, says Gerard Brody, acting director of Super Consumers Australia. “The system is complex, demanding consumers to possess high levels of knowledge and engagement to maximise their retirement outcomes.”

“Yet, our research also found that only 43 per cent of older Australians have sought some kind of advice about money in retirement, and only 21 per cent expressed trust in advice from a super fund.”

The survey also finds that 58 per cent of over 65s who have an inactive “accumulation” account – which they are no longer contributing to – said they do not need to start drawing on their super.

It means they are likely to be paying tax on the money in their accumulation account when the money could be tax-free. Accumulation accounts are the super accounts everybody initially establishes to receive contributions from their employer.

Super funds also have “pension” accounts that are tax-free for most retirees and for those over age 65, even if still working. They can take the money out either as a lump sum or income stream.

The survey results show about 80 per cent of older Australians feel financially comfortable or are getting by on their current income.

However, renters, people with a disability, and people who no longer have any super, reported much lower levels of financial comfort. This group, in particular, is likely to be feeling significant cost pressures on their household budgets.

Figures from the Association of Superannuation Funds of Australia (ASFA) shows that though inflation is slowing, the amount needed to afford a comfortable retirement rose 1.3 per cent in the September quarter compared to the June quarter – to $71,724 a year for homeowning couples and $50,981 for homeowning singles.

ASFA estimates the cost of a “modest” lifestyle to be $46,620 for homeowning couples and $32,417 for homeowning singles.

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About Abu Hamza

Abu Hamza is member of Business Bee Staff

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