$400,000 superannuation warning as Aussie retirees risk ‘exhausting’ their savings: ‘No chance’

A new report has revealed your super balance, size and design, not just returns on income, decide your retirement. · Source: Getty

Retirees with less than $250,000 in superannuation face a “high likelihood” of running through their nest egg within a decade if they live a comfortable lifestyle, new research has revealed. Longer life expectancy, higher living costs and market volatility mean many Aussie retirees are now facing difficult choices to ensure they don’t outlive their savings.

But the size of your starting balance isn’t the only factor that determines retirement outcomes, new analysis by the Monash Centre for Financial Studies found. Using Capital Market Assumptions, the study found the mix of equities and bonds, and the sequence of market returns in the first years of retirement were also key factors.

Associate Professor Ummul Ruthbah, one of the authors of the study, said the findings were “sobering”, highlighting the fragility of retirement outcomes for Aussies.

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A retiree with just $100,000 was found to have “virtually no chance” of funding a comfortable lifestyle over a decade, regardless of their asset mix.

For retirees with balances above about $400,000, the chance of sustaining income rises to a “near certainty”, regardless of portfolio design.

Dr Trinh Le, the study’s other author, said mixed equity-bond portfolios that combine stocks and bonds were found to provide the most consistent outcomes for modest balances.

“All-equity strategies deliver higher average ending balances but carry sharper drawdown risks, while bond-heavy portfolios virtually guarantee capital erosion when withdrawals are set at comfortable levels,” Le said.

According to ASFA benchmarks, a single would need $630,000 and a couple $730,000 at the age of 67 in savings to achieve a comfortable retirement.

Women at higher risk of ‘exhausting’ funds

Women were found to be at higher risk of exhausting their superannuation balances as they retire with balances 20 to 30 per cent lower than men.

For female retirees with a median balance of $210,000, the study found even a balanced portfolio still carried “material chances” of exhaustion within a decade.

Male retirees, who have median savings of $283,000, fared significantly better and faced more secure outcomes across different asset mixes.

Ruthbah said the gap highlighted the need for measures to boost women’s super savings, such as targeted contribution incentives, reforms to address career breaks and pay disparities, or enhancements to the Age Pension safety net.

The government introduced superannuation on parental leave payments in July last year. It also announced changes to the LISTO payment, which will kick in in July next year, and will raise the income threshold and maximum payment.

Market volatility can have a huge impact

The study also revealed the huge impact that market losses can have early in retirement.

For example, someone who retired in 2022 could end up with a significantly lower balance after 10 years than someone who retired just a year later in 2023 due to market volatility that year.

“An early market downturn can reduce ending balances by as much as 25 per cent, leaving retirees with far less flexibility even if markets recover later,” the report said.

“Balanced portfolios cushion some of this damage, but neither all-equity nor all-bond allocations protect effectively against sequencing shocks.”

One approach could be to consider reducing or postponing withdrawals during periods of significant market decline, the researchers said.

Retirees could also benefit from adopting a flexible withdrawal strategy that adjusts to market conditions and personal circumstances, rather than a fixed withdrawal rate.

For those with a low super balance, Ruthbah said one option was to adjust spending.

“Our study finds that when retirees target a moderate level of spending rather than a more comfortable lifestyle, the portfolio is more likely to remain sustainable over ten years, regardless of the asset allocation,” she said.

“Another important consideration is maintaining some exposure to equities. Our capital market assumptions suggest that bond-only portfolios are unlikely to generate optimal returns relative to the level of risk taken over the long term.”

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