Big data finally reveals how retirees really live

The superannuation industry isn’t quite sure what a comfortable retirement is – even as it desperately works to help members achieve that elusive goal.

It’s no surprise given the complexity of the task, which is affected by lifespan, personal expectations, government legislation, savings rates, market performance and more.

But the problem is that members are likely to become disengaged and lose trust in the industry when they read conflicting articles about how much they need to save:

• A couple will need about $640,000 in super savings to have a comfortable retirement.
• A couple that saves at least $1 million in super will only generate about two-thirds of their pre-retirement income.
• A couple needs about $1.5 million in super to generate an income equivalent to average weekly earnings.
• A professional couple will need about $2 million in super at retirement.

These numbers stand in stark contrast to the median super balance at retirement (for those aged 60 to 64 years of age) of just $100,000 for men and $28,000 for women in 2013-14. Whatever estimate is chosen for a comfortable retirement, it’s completely out of touch for at least half the population. We owe them more.

The current crop of widely ranging estimates also leaves much to be desired for wealthier Australians. Super accounts for just a small component of net household wealth according to the Productivity Commission and wealthier people tend to have more assets outside of super. It’s just not possible for funds to estimate the level of super their members require when they don’t know the level of non-super assets they have and how they’re being used.

Milliman’s quarterly Retirement Expectations and Spending Profiles (ESP) report now allows funds to see that information by analysing 300,000-plus retirees’ spending data.

The Retirement ESP shows that Australians aged 65 to 69 spend a median of just $31,068 (from all sources including super, non-super savings and government benefits) each year.

To fund this expenditure with 75% certainty would require a superannuation balance of approximately $130,000 invested in a balanced fund. This also includes the substantial contribution of the Age Pension (set at a maximum of $20,745 a year), which funds a substantial portion of retirement income.

This isn’t to say that $130,000 should be a goal – it shows that even small differences in savings can have a hugely positive impact on members’ actual retirement lifestyles. This is the basis for true engagement.

The Milliman Retirement ESP also reveals the behaviour of retirees by wealth bands, age, singles versus couples, location, as well as showing their essential versus discretionary spending and how it changes through retirement.

This type of quality data is crucial given most members won’t seek personal financial advice. However, data is just one component of delivering a personalised retirement experience. It also takes powerful actuarial analysis and modelling to forecast how members are behaving now and in the future. This combination of data and analysis can then provide a sophisticated profile of members that can ultimately underpin and deliver the right products to the right members at the right time.

Each member must ultimately define their own comfortable retirement but it’s only by understanding their reality that funds can help them achieve it. This article was first published by Professional Planner. Read more about the Milliman Retirement ESP here.

This article was first published by Professional Planner. Read more about the Milliman Retirement ESP here.

Disclaimer

This document has been prepared by Milliman Pty Ltd ABN 51 093 828 418 AFSL 340679 (Milliman AU) for provision to Australian financial services (AFS) licensees and their representatives, [and for other persons who are wholesale clients under section 761G of the Corporations Act].

To the extent that this document may contain financial product advice, it is general advice only as it does not take into account the objectives, financial situation or needs of any particular person. Further, any such general advice does not relate to any particular financial product and is not intended to influence any person in making a decision in relation to a particular financial product. No remuneration (including a commission) or other benefit is received by Milliman AU or its associates in relation to any advice in this document apart from that which it would receive without giving such advice. No recommendation, opinion, offer, solicitation or advertisement to buy or sell any financial products or acquire any services of the type referred to or to adopt any particular investment strategy is made in this document to any person.

The information in relation to the types of financial products or services referred to in this document reflects the opinions of Milliman AU at the time the information is prepared and may not be representative of the views of Milliman, Inc., Milliman Financial Risk Management LLC, or any other company in the Milliman group (Milliman group). If AFS licensees or their representatives give any advice to their clients based on the information in this document they must take full responsibility for that advice having satisfied themselves as to the accuracy of the information and opinions expressed and must not expressly or impliedly attribute the advice or any part of it to Milliman AU or any other company in the Milliman group. Further, any person making an investment decision taking into account the information in this document must satisfy themselves as to the accuracy of the information and opinions expressed. Many of the types of products and services described or referred to in this document involve significant risks and may not be suitable for all investors. No advice in relation to products or services of the type referred to should be given or any decision made or transaction entered into based on the information in this document. Any disclosure document for particular financial products should be obtained from the provider of those products and read and all relevant risks must be fully understood and an independent determination made, after obtaining any required professional advice, that such financial products, services or transactions are appropriate having regard to the investor's objectives, financial situation or needs.

All investment involves risks. Any discussion of risks contained in this document with respect to any type of product or service should not be considered to be a disclosure of all risks or a complete discussion of the risks involved.