Perceptions that our cashed-up seniors are enjoying a life of luxury paid for by their abundant superannuation funds are wide of the mark according to new research released by the CSIRO.
In fact, the research reveals, many older people are living excessively frugal lives and are deliberately choosing to avoid drawing down their super balances.
Why that should be so is a matter for conjecture which will now be investigated further by the team behind this research. Experts speculate that with increased life-expectancy and the possibility of high medical bills later in life, seniors are worried that if they draw on their super now they will run out of money as they get older. In order to avoid that, many over-compensate and choose to draw down far less than they could realistically afford to do to live a comfortable lifestyle.
Others, it is speculated, are choosing to keep their super balances intact in order to pass on an inheritance to their children, even though the point of super is to help fund retirement, not facilitate inheritance planning.
Tax laws dictate that retirees must annually withdraw a minimum amount from super as a pension to qualify for the tax exemption on super investment earnings. This is 5% of the pension’s account balance for Australians aged 65 to 74 and 14% for anyone 95 and older. In many cases, seniors could comfortably afford to withdraw far more than that minimum amount.
Interestingly, it isn’t just those with low super balances who are taking a frugal approach. The same pattern was observed by the researchers across the whole spectrum of super balances, whether the balance on an individual’s super account is $100,000 or $1 million.
The next step for the CSIRO will be conducting surveys and experiments into the reasons behind people’s superannuation decision making.
Our H&R Block accountants are now working online. Book an appointment with an expert.