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When it comes to daily anxieties, it seems most Aussies are worried about whether they will have enough saved for their retirement. In fact, the ABC’s recent online Australia Talks survey found worries about retirement income were only outstripped by our concern about climate change.
And the worry gets worse the closer you are to retirement, with the level of worry about outliving your savings and investments being 68% higher among Aussies not yet retired, according to a new study by National Seniors Australia.
So, what are some of the things you can do to ensure worry about your retirement savings is not keeping you up at night?
Who’s worried about their retirement finances?
National Seniors Australia (NSA), in partnership with financial services firm Challenger, undertook research to find out how Aussies felt about their retirement finances and found both pre-retirees and retirees are worried they will outlive their retirement savings.
People without any super reported the highest levels of worry, with 23% worrying frequently.
The study also found women (59%) were more worried about outliving their retirement savings than men (47%).
These findings mirror a January 2020 study on behalf of the Australian Institute of Superannuation Trustees (AIST), which discovered over a third of respondents (39%) aged under 65 believe they will not have saved enough to be financially secure in their retirement. Among those with a lower household income, this concern was shared by 55% of respondents.
Only one in five (20%) of respondents think they will have saved enough in the super account alone to be financially secure.
Our worries continue after retirement
Concerns about outliving your retirement savings continue to be an issue even when you are retired. Among AIST study respondents aged over 65, around half (52%) worry they will outlive their savings and 39% do not feel financially secure.
Many retirees (41%) reported they could not afford to regularly go to restaurants and cafes and 26% were unable to buy gifts for family and friends when they wanted to do so.
A significant group of retirees (46%) also found retirement was more expensive than they expected, with just 5% finding it cheaper and 47% about what they expected.
This may explain the NSA study finding that more than half of retirees had found it necessary to draw down some of their retirement savings in the past five years, leaving many anxious about how long their savings would last.
9 action steps to reduce your anxiety about retirement
Given the high amount of concern about our retirement finances, what can you do to help limit your stress levels? Here are some ideas to consider:
1. Start planning for your retirement early
Although the Age Pension is a great safety net when it comes to your retirement, having it as your main source of income when you stop work is guaranteed to leave you anxious about your retirement. So, make retirement planning a lifetime process – even when daily life and today’s expenses seem pressing.
Concern about your retirement finances can be reduced by taking action. As the NSA study noted, deal with anticipatory worry by planning and saving. “The message for younger people is simple and clear: ‘Don’t worry because you can still save and plan and this will be much more difficult if you leave it until you’ve retired from work’.”
2. Boost your super savings early in life
Retirees receiving income from their super savings are more likely to be unconcerned about their retirement finances. The NSA report found among retirees with less than $500,000 in retirement savings, 65% worried about outliving their retirement savings. Having the Age Pension as their main source of retirement income saw 53% of people anxious about their retirement finances.
So, if super income is critical to avoiding worry, start saving as soon as you can. The AIST study found many respondents only started to plan and save as retirement approached and they were forced to think about life in retirement. In fact, only half of the respondents were making additional voluntary contributions closer to retirement.
3. Consider buying a lifetime annuity
A key finding in the NSA study was the majority of retirees with a regular income stream from a defined benefit pension or lifetime annuity were unconcerned about outliving their retirement savings. The picture was similar for retirees living on income from dividends, rent or business income.
Having a reliable source of income that lasts for life is a key factor for worrying less, so unless you are lucky enough to be a member of a defined benefit super fund, buying a lifetime annuity product could be one way to get some peace of mind about your retirement finances.
4. Make extra contributions if you’re female
The risk of worrying about your retirement finances is 47% higher in women than men, with divorced and widowed women the most worried. They are also more likely to depend on the Age Pension due to their lower level of retirement savings.
To overcome this, try to build your super account balance and consider making voluntary super contributions during any breaks from paid employment (such as maternity leave), if your financial situation permits it.
Women also need to plan for a longer life expectancy by saving throughout their career and ensuring they have a good level of financial literacy.
5. Have a sensible spending plan for retirement
Planning your spending in retirement is one way to reduce concern about your retirement finances. The NSA survey reported around half of respondents retired five years or more had been forced to draw down on their retirement savings. This was largely due to planned spending (27%), but 11% found they had spent more than they thought and 25% found their savings went down due to investment market conditions.
Try mapping out a spending budget based on your financial circumstances and goals rather than using simple ‘rules of thumb’ about how much you can withdraw. Include any lump sums you plan to spend, such as an overseas trip, new car or home renovations.
6. Put away extra to fund health and aged care needs
Most people don’t plan to finance their health and aged care needs in later life, which is likely to become increasingly expensive as more and more people need care. The NSA report notes that with the baby boom bulge coming into ages where care is needed, “a strong pressure to self-fund care can be expected” as the government will not be able to provide it for everyone.
The cost of aged care is significant and this needs to be built into your planning if you want reduce worry about your retirement finances.
7. Get married and stay married
Married retirees are less likely to worry than either divorced or widowed retirees of either gender, according to the NSA study.
This finding matches other studies which found evidence that being in a relationship improves your life satisfaction once you are in retirement. Unfortunately, divorced women are among the most worried about their financial situation in retirement.
8. Talk to a financial adviser or your super fund
Good financial advice can help maintain or increase your retirement savings and can help reduce concern about your finances. Although the NSA report found there was almost no difference between those receiving advice and those who didn’t, retirees who got advice were less likely to worry frequently.
The report found evidence it was beneficial to seek advice about retirement and then implement it, particularly to ensure you have a source of income for life.
9. Be realistic and don’t worry
A clear message from the research is you will worry less about outliving your savings as you get older. Once people actually retire from the workforce, they tend to worry much less about outliving their retirements savings.
A comforting message is that retirees generally learn to adjust to their circumstances in retirement, even if it is not necessarily what they planned or expected for their retirement.