Myth busted: Retirees tend to not run down super savings quickly

A report released by the Actuaries Institute last week on retirement income showed that drawdown behaviour of retirees are similar across the board, regardless of the size or type of retirement savings accounts. Retirees super savings quickly

The Actuaries Institute’s Retirement Income Market Report, which it labelled as “the most comprehensive study of Australian superannuation accounts ever undertaken”, also found that about half of all retirees only draw down the regulated minimum.

“Contrary to some views that retirees quickly run down their super balances and then rely wholly on the Age Pension, the reality is that at least half of the pensioners take a very financially conservative approach in retirement,” the Institute said when releasing its report.

The report was based on two studies. One was sponsored by the Actuaries Institute and conducted by an independent actuarial firm, compiled from 10 years of data supplied by 15 large super funds accounting for more than $12 billion of assets in drawdown phase each year. The other study was based on ATO data for SMSFs supplied to the CSIRO-Monash Superannuation Research Cluster over 11 income years.

However the Actuaries Institute predicted that there will be an increase in the number of retirees who run down their super savings completely by drawing down more than 10%. “The data confirms research from other sources that a significant minority of retirees have, in recent years, run out of retirement savings before death,” the report said.

The report’s other main findings include:

  • While average account sizes were significantly lower for industry funds when compared with retail, corporate and SMSFs, their pension and partial drawdown patterns were remarkably similar, suggesting shared behaviours between pensioners in all groups.
  • Close to 50% of pensioners seem very cautious and draw the regulated minimum from their accounts, underlining the importance of default mechanisms in superannuation. This is true for all types of funds.
  • Some retirees will exhaust their super balances entirely, and while the proportion overall is small (about 5% of SMSF balances), the numbers will grow in future years as the population ages. This is because, between the ages of 75 and 85, about a fifth of balances are being drawn down at more than 10% of their balances, which is not sustainable for those who live longer than average.
  • The data also revealed that approximately 400,000 accounts, totalling $22 billion, were withdrawn in full from non-SMSF accounts, reflecting a large number of small accounts. Interestingly, average full withdrawal amounts for industry funds were found to be two to three times larger than for retail and corporate funds.
  • The average balance on death for retail and corporate funds was $50,000. However, the Actuaries Institute concluded that the superannuation system is not yet fully mature and these balances do not reflect participation in the superannuation system throughout a working life.

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