Australian retirement expectations

An interesting article in The Inside Adviser based on some consumer research by Vanguard Australia.  It found that working age Australia's would like a retirement income of $99K and retirement age of between 59.5 (18-34 year olds) to 61.5 (35-54 year olds), where those actually approaching retirement (age 55+) expect to retire at age 64.9 on average. And those already in retirement have a more modest retirement income expectation (only $68K).

The article indicates that this discrepancy may be due to several factors - such as unrealistic expectations, lack of clarity regarding wants and needs during retirement, concerns about cost of living increases (eg recent rent increases) etc.

I suspect there may simply be uncertainty regarding tax imposts during retirement. For example, if you make $99,000 a year living in Australia as a wage earner, you will be taxed $24,622. That means that your net pay will be $74,378 per year, However, under current legislation, self-funded retirees receiving a pension income stream from superannuation in 'pension phase' would not pay any income tax on that part of their retirement income. From 1 July 2017, the total amount of super you can transfer into a tax-free retirement account is capped. This is called the transfer balance cap and is currently $1.7MM. The general transfer balance cap is reviewed each financial year and indexation occurs in line with the consumer price index in $100,000 increments, so is expected to rise to $1.9MM from 1 July 2023. If you're drawing a retirement income stream from your super, then the investment earnings are exempt from tax, including capital gains. This tax exemption on investment earnings also applies if you commenced the income stream due to permanent incapacity.

Of course the is legislative risk associated with superannuation (just look at recent proposal to increase tax rate on 'earnings' of superannuation amounts above $3MM), so younger retirees may not be counting on receiving any superannuation pension income 'tax free' in future.

In any case, having expectations of high retirement income levels and early retirement age may not be a bad thing if it encourages saving for retirement -- it is probably better to be able to retire earlier than expected and with a higher level of retirement income than having to work longer than desired and/or ending up with insufficient retirement income. However, if the higher expectations don't lead to taking action to meet the 'requirements' it is simply setting oneself up for disappointment. I doubt that most people bother evaluating whether or not they are 'on track' to achieve their retirement expectations. They simply pick a figure and hope for the best.

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