Just half the Australian working population is retirement ready and the stats are even worse for women, warns Mercer in latest study.
Analysing 18 funds nationwide, Mercer’s 2016 Retirement Readiness Index also reveals Baby Boomers are the least prepared generation in terms of superannuation, with the Millennials not doing so well either1.
The new study by Mercer released at the 2016 Association of Superannuation Funds of Australia (ASFA) Conference on the Gold Coast finds that just 41% of women and 53% of men in Australia are on track to achieving a comfortable retirement income, issuing a strong warning for members to take their superannuation more seriously. Voluntary contributions can significantly boost future financial security, however only 16% of Australians do this regularly.
This is the first time Mercer’s Retirement Readiness Index has been used to conduct a study of this kind, comparing the retirement readiness of industry funds, corporate funds, and master trusts to the average of Australia’s working population2.
Income level was a key determinant to members’ readiness, with 94% of taxpayers earning over $100,000 on track to a financially secure retirement. However, the ASFA standard for what annual income equates to a ‘comfortable lifestyle’ is relatively low – $59,160 for a couple3.
The most successful generation in terms of superannuation is Gen X, outperforming all other generations with higher incomes and higher levels of voluntary contributions.
Mercer Senior Partner, David Knox said the study should act as a warning to both funds and members to act now in order to ensure the financial security of Australians in the future.
“Using the Retirement Readiness Index, funds can easily identify the least prepared, and help them be more active where it counts. The correct investment strategy choice is crucial to ensuring financial security in retirement. Members must also consolidate their accounts and be strongly encouraged to regularly make voluntary contributions,” said Dr Knox.
For example, a 35-year-old on a salary of $50,000 and an initial super balance of $30,000 who starts salary sacrificing $100 per month (2.4% of salary, or a coffee per day) will increase their expected retirement income from 98% to 103% of ASFA’s comfortable standard. This is an increase in projected age 65 balance4 from $248,129 to $290,558 (an increase of 17%).
A 50-year-old on a salary of $60,000 and an initial super balance of $100,000 who starts salary sacrificing $200 per month (4% of salary, or a coffee and a muffin per day) will increase their expected retirement income from 99% to 103% of ASFA’s comfortable standard. This is an increase in projected age 65 balance4 from $230,485 to $266,015 (an increase of 15%).
It’s important that individuals and households pay attention to their superannuation as soon as possible with the benefits of compounding over a life time. However, it’s never too late to start. Older workers can still have a positive impact on their super by making additional contributions, but by then it needs to be a larger portion of their income.
“Super funds play a critical role in recognising where retirement income gaps are occurring and encouraging underprepared members to actively take control of their financial future,” said Dr Knox.
“Funds must also consider what retirement income is most appropriate for each of their members. Will a high income couple really be happy living off just $59,160 per annum in retirement?”
Mercer is a global consulting leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and careers of their most vital asset – their people. Mercer’s more than 20,000 employees are based in 43 countries and the firm operates in over 140 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global professional services firm offering clients advice and solutions in the areas of risk, strategy and people. With annual revenue of $13 billion and 60,000 colleagues worldwide, Marsh & McLennan Companies is also the parent company of Marsh, a leader in insurance broking and risk management; Guy Carpenter, a leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a leader in management consulting. For more information, visit www.mercer.com. Follow Mercer on Twitter @Mercer
1 Data based on 30 June 2016
2 ATO’s 2% sample data
3 June quarter 2016, national
4 Discounted to be relative to current salary levels