The future of retirement

By Leith van Onselen

HSBC earlier in the week released a detail survey entitled The Future of Retirement: A new reality, which analyses global retirement trends. The survey findings are based on a representative online survey of 15,000 people in 15 countries, and covered people of working age (25 and over) and those in retirement. The survey was conducted during July and August 2012, with data collected on both a household and individual basis.

The survey found that most people are falling short of a comfortable retirement. In order to sustain a comfortable standard of living in retirement, people say they would need 78% of current income, which is far higher than is likely to be achieved. However, Australians only expect to require 66% of current income, which is at the bottom of the countries surveyed (see next chart).

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Currently, 48% of respondents across the 15 countries have never saved towards their retirement, with more non-savers in high-income countries such as the UK, France, Canada and Australia [obviously the study does not take into consideration Australia’s compulsory superannuation system]. Meanwhile, nearly one-third (32%) of respondents expect to rely on the state for their main source of retirement income. Over half (56%) acknowledge that they are not preparing adequately to achieve a comfortable retirement (58% in Australia).

According to the survey, people on average expect their retirement to last for 18 years, but their retirement savings to last for only 10 years, running out just over half way through retirement.

Australia also has a low precentage of regular savers, although this could reflect our compulsory superannuation system (see next chart).

Finally, around a quarter of older people are likely to sell their housing assets once they run out of savings and financial assets, which could weigh on the housing market (see next chart).

The full survey is below.

HSBC – The Future of Retirement (Feb 2013) by leithvanonselen

Comments

  1. Saving for retirement is an interesting macro-economic concept. How can a whole society do it, I mean is it even possible?

    I guess in theory if a retirees capital is invested in a manner that dramatically improves the countries productive, then they have properly invested for their retirement. Otherwise they have only created a rent seeking annuity system which burdens the next generation. It does seem to me that when older Australians talk about investing they really mean developing “rent seeking” opportunities.

    Unfortunately when a whole country invests in “rent seeking”, their capital does not result in productivity gains, so it is really not savings, making it just another way to burden tomorrows youth.

    • Great comment – ‘investing’ is a loose term that Australians use when they tend to mean rent-seeking.

      • Excellent comment Cameron. It should be obvious to all – a society can, in the long run, only consume as much as it produces. Those still working have to produce everything the retired part of the population consume, however you organize the funding.

        The only difference fully funded vs PAYG might make is to the distribution of that consumption among the retired population.

      • Private sector net savings are only possible if the combined Government and External Sectors run a deficit (by the very definition of GDP).

        As the external sector runs a surplus against Australia, the government must run a bigger deficit than the external sector’s surplus to enable the Australian private sector to have net savings.

        Which is why Abbott and Hockey’s promise to run never ending surpluses is either cynical posturing or a pending disaster for the private sector. The question is “which parts of the private sector will have to lose income or savings to fund the government surplus?”.

        Unionised workers including in particular public service workers and lower socio-economic welfare recipients are the likely losers is my guess.

        • It seems to me that wrt external sectors Australian super should be focused on investing specifically where the demographics favor increased support ratios (retired-vs-working age). This is especially true given the close proximity of Indonesia and India, both of which have population booms that will move through their peak productivity years when Australian retirees most need the income.

          It is clear that private sector net savings are only possible with CAS, yet we run CAD year in year out and then talk about net savings being up or down. I guess I’ll never make a politician because I could never sell that little lie without feeling like a demented idiot. I think uni’s also probably gave up teaching classical logic classes because it negatively impacted the kool-aid sales, upon which the country depends….

          do you ever feel like you’re at a puppet show and rather than focusing on the story line, all you see is the puppet master behind the curtain? I always get that feeling in Australia, I wonder why?

  2. Never before has the world had a demographic as large as the Baby Boomer demographic to look after in old age.

    I have seen many comments criticising our Superannuation policies as being inequitable, sure some will benefit ,but it certainly beats the problems facing countries such as the UK and US.

    The challenge of funding just the basic costs of living for this generation is mind boggling. In the UK it is estimated that 5 trillion pounds will be needed over the next 15 years. How are they going to raise that when it is already one of the world’s most indebted nations with taxes that are already too high.

    The US is even worse with a savings rate which would not last many through 2 years of retirement.

    The key message here, is that either future tax payers are on the hook for the lifestyle expectations of the ageing populace, or, the ageing populace in many countries need to readjust their expectations. I suspect the latter, Horse meat over Fillet perhaps.

  3. well, good thing no one asked me what’s what then –

    i live on just 30% of my pre-retirement income as a part pensioner (a part pension contributed to during a working life which was hopefully of benefit to oz exports and knowledge … although …) and though obviously no longer living an extravagant life, i am more than happy – have a sound house and car; no debt; don’t want for anything i don’t have; can eat well; don’t watch tv or the flicks + i can look at the web for amusement; i live next to the bush to be a part of what little remains of nature and have no plans to sell to fund what i don’t have; can occasionally visit nz & oz, have otherwise looked os and don’t like what i see, so what’s over there that’s not better here? – well i suppose we could have encouraged better architects (or political leaders? 🙂 to immigrate in the past, but at least so far our ugly mines are where no one wants to go (… so sorry original australians, my heart goes out to you)… and sorry any ugly miners here – well not so sorry

    – and lastly, bliss that our current sometimes unimaginative and ugly pollies don’t want to live cheap near me and that i have a recycle bin for their flyers 🙂

    • @sadness – out of interest what are your contingency plans when….

      Govt erodes the real value of your part pension to offset its revenue constraints?

      Your medical costs increase so that that 30% of pre retirement income becomes 15% or less? (80% of medical costs are incurred when a person is +65)

      I’m sure there are many in your position that are managing to survive on a fraction of pre retirement incomes but if you are only earning 30% then I would imagine you would need to eat into your capital in the very near future to maintain even that frugal lifestyle.

      • sorry the delay in answering your questions, i don’t look in here a lot – anyway finally several answers –

        1. worked it thru and saved enough to look after myself in an economically frugal (if you like) but reasonably comfortable style until my likely demise, considering my families history of life duration and type of family illness – but of course who knows – no doubt retiring with $75mil as per Kloppers would be an advantage, but then you never know, K might make poor investments and lose it all within a year … and i’m not sure he’d like living next door to me

        2. in sickness or in health? – i’m well now, if i become sick i’ll die – no problem – i’ve currently had 72 years – so far not a bad run and the body still works ok, so here’s hoping to keep the brain ticking over, although i often think that to forget where you are and who you are might not be such a bad thing – so, eating into capital Vs eating into frail flesh is the vital question then

        3. planing trips to Italy, France, Spain etc etc etc? – been there done that in my 20’s when i was young and healthy and full of life – now i’m old and tired and no one wants to party with me no more … well not the type of parties i like anyway – the young and beautiful take one look and run the other way – and i’m not so sure i like old people that much myself anyway

        – so what i’m saying is that oz gov don’t give away much, but with careful planing it might just be enough to keep you going in old age, without breaking oz govs or your own bank and without one expecting excessive handouts

        – just joking of course, but dear Taro Aso might have had an, ahem, ‘natural selection’ point

  4. Well, I guess many of them will have to live in slums until their day is up. I am not paying for their stupid mistakes, nor do I want to pay to be a rent slave. But many older people who don’t own a own, well, that is a tough one, they grew up in an error where a company was to look after them, but within the space of 30 years everything they new has been changed because of a global world that only benefits a few people. Anyhow, even those who didn’t manage to get a home or turn a home into a rent debt for the next gen still share responsibility for not changing the status quo.

    It might be a hard thing for many but it’s better for them to suffer (especially since they are old and have one foot in the grave already) then to burden the next gen with their stupid mistakes.

  5. It’s hard to see how the survey results include the whole population.

    The chart headed “older people more likely to sell their home” has no cohort which says “rely on government welfare or charity”. It is unclear what proportion of the respondents don’t own their own home, particulalry among older age groups.

    The “how long do you expect your savings to last” is also fraught with ambiguity.

    In Australia I can own my own home and have some level of savings in the bank and get a full or partial age pension. So because someone is getting an age pension their savings will last much longer and when they get below a certain threshold the age pension becomes a full age pension and so the remaining savings last even longer.

    Maybe the question is how long could you live on your savings/investments alone without government support?

    Similarly there could be a question of how much of your annual spending do you expect to be from government pensions (other than superannuation pensions) at 60, 65, 70, 75, 80, 85 and 90. Remember about half of the population over 50 gets past 85 after the infant mortality, accident and suicide years have passed.

    Given average super balances in Australia for those already over 55 I suspect most people will be on the age pension from between 65 and 70 years of age unless they have been in defined benefit government schemes for a very long time. It may be much higher for those who are presently younger and will have contributed all their working life by the time they retire. If you have the savings you retire at say 55 and chew up most of the savings living well and travelling or helping children get established and are then eligible for a part or full pension at 65.

  6. CPA-commissioned study suggests that compulsory super savings in Australia have been more than offset by higher borrowings which are now not being fully paid out at retired.

    Australians savings are lower with many placing too much faith in compulsory super and pensions.

    Original modelling for Keating suggested there would be a savings substitution effect. However the impact has been much greater. Even Keating is disappointed with the outcome. Given his ego, that is a big admission.