ASFA’s Comfortable Retirement Standard, released last month, is a useful checkpoint. In a system built on balances and benchmarks, it gives Australians a practical anchor for what ‘comfortable’ retirement might cost in today’s dollars, grounded in real spending.
They estimate the annual cost of a comfortable retirement for homeowners is $54,840 for singles and $77,375 for couples. For couples, they suggest that the ‘lump sum’ required to fund that lifestyle has risen to $730,000.
A useful reference point, but the problem with benchmarks like this is that if we frame retirement success primarily as ‘hit this balance’, we risk leaving Australians anxious, over-conservative, and under-supported in the most important financial transition of their lives.
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Because the question of ‘how big is big enough?’ misses the point on what matters most to Australians in retirement. That is, will my income last as long as I do?
The reality is that the super industry is not doing nearly enough to allow Australians to answer that question with a confident ‘YES’.
In retirement, two financial risks dominate the minds of retirees. Longevity risk, the risk they will outlive their savings; and sequencing risk, where market downturns early in retirement can permanently reduce how long their savings last.
When retirees don’t feel those risks are being actively managed, predictable behaviour follows: they underspend ‘just in case’, hold unnecessary cash buffers, and carry anxiety for years.
These fears are backed by research, which indicates that only half the Australian population feel financially confident about their retirement, and it’s lower for some groups, including women.
That’s why there is a degree of irony in ASFA’s release landing in the same week as the Federal Government’s Best Practice Principles for Superannuation Retirement Income Solutions.
The principles go to the heart of the purpose of super: not simply accumulating savings, but the conversion of savings into income that people can depend on for life.
The good news is that the blueprint to achieve this already exists. New types of solutions that combine the flexibility people value in account-based pensions with longevity protection can provide a base level of income for life, while still keeping exposure to market growth. They also integrate with the age pension, on which many Australians still rely and, importantly, are being supported by new forms of low-cost digital financial advice.