Australians Lower Retirement Expectations Amid Cost Pressures

Australians are adjusting their retirement expectations, now believing they need significantly less saved to retire comfortably. A recent report found the estimated comfortable nest egg has dropped from $1.6 million to $823,000 in just one year. Despite this, more than half of working Australians don’t think they’ll reach this target before leaving the workforce, raising concerns about financial security in retirement.

Colonial First State’s latest retirement study highlights a growing confidence gap among older workers. The survey of 2,250 Australians found that individuals over 50 are particularly pessimistic, with just 42% expecting to hit the $823,000 savings mark. This figure remains higher than official industry estimates, which suggest $690,000 is sufficient for couples and $595,000 for singles, yet most Australians are still falling short.

Recent Australian Taxation Office data from 2022 shows that men in their early 40s have an average super balance of just under $132,000, peaking at $488,000 for those 75 and older. Women generally have lower super balances, averaging a little over $100,000 in their 40s and rising to $416,000 past age 75. Median figures are significantly lower, highlighting the financial struggle many retirees face.

Cost-of-living pressures are now the dominant concern for retirees, with 76% reporting that their pension is being absorbed by essential expenses like groceries and utilities. One in four retirees are also using their pension to pay down debt, further limiting financial flexibility. The proportion of retirees who feel they are living comfortably has dropped from 71% to 64% over the past year, reflecting growing financial stress.

Even with scaled-back retirement expectations, there is still a disconnect between projected needs and actual savings. Australians over 50 estimate they’ll need an annual income of $100,000 in retirement, while younger generations expect to need even more - $150,000 for those in their 40s and $180,000 for those under 40. In reality, a super balance of $823,000 at age 67 would provide only $68,000 annually, according to government estimates.

Despite financial concerns, engagement with super funds is increasing. Around 40% of Australians reviewed their super fund performance in the past year, up from 36% previously, and 28% sought financial advice, an increase from 23%. The rising interest in retirement planning suggests many Australians are trying to take control of their financial future despite ongoing economic headwinds.

Source: The Australian, Australian Retirement Trust, Colonial First State