You have more money than you think
WE'RE falling victim to the financial "fear factory" and the future really isn't as bad as we think, according to the experts.
New research has revealed that Australians will have plenty of money when they retire, and will actually be more comfortable than those still working.
Retirees are likely to be even better off thanks to a combination of compulsory super contributions, non-super savings and the Age Pension.
A Grattan Institute study shows that, even after allowing for inflation, the average worker today can expect a retirement income of at least 91 per cent of their pre-retirement income.
That's well above the 70 per cent benchmark.
But with reports and research constantly telling Australians they need to set themselves up now because they will not have enough to retire, it's no wonder people are stressed.
Figures are thrown around in the millions on what you'll need in retirement and are far from attainable for those on low-incomes or without any investment properties.
Comparison website finder.com.au found the average Australian would need $2.9 million in the bank to be able to afford to live off the interest - and quit their job.
Their database shows the best 'non-bonus' interest rate is currently 2.87 per cent per annum.
Aussies would need $2,873,937 in their savings account for the interest earned to replace the median full time Australian income of $82,482.
While it seems like a giant sum, you'd get a monthly income of $6874 before tax.
Grattan boss John Daly said the conventional wisdom that Australians were not saving enough for retirement was wrong.
Their report Money in retirement: more than enough shows retirees will be able to pay a bill on time and are more likely to afford annual holidays.
He said retirees today typically had enough money to sustain the same, or a higher living standard as when they were working.
The report details how Australians tend to spend less after they retire and while their medical costs increase, they are largely covered by the taxpayer.
"The financial services industry 'fear factory' encourages Australians to worry unnecessarily about whether they'll have enough money in retirement," Mr Daley said.
But it's not good news for everyone. Those on low-incomes who rent, particularly in Sydney and Melbourne, will struggle.
The report indicates this problem will get worse because on current trends home ownership for over-65s will decline from 76 per today to 57 per cent by 2056.
The institute recommends to boost retirement incomes for the poorest Australians, the amount of government rent assistance should be increased by 40 per cent - worth more than $1400 a year for a single retiree.
It also calls for legislated increases to super contributions - which will rise to 12 per cent from a current 9.5 per cent - to be scrapped.
Workers would be receiving the full 12 per cent by July 2025, at a cost of $2 billion a year.
The report argues this will ultimately cheat workers because it would "take away more money from working-age Australians that could be used to pay down the mortgage", potentially leading to larger household debt in retirement.
But Industry Super Australia has lashed out at the report, saying it is "deeply flawed".
The group's retirement income adviser Phil Gallagher said Grattan's dubious modelling assumptions were unrealistic and unrepresentative of most Australian employees.
"Across all age groups just 12.2 per cent of employees with super make additional concessional contributions but Grattan appear to have assumed that everyone does," he said.
"This loads up contributions and inflates retirement balances significantly. The methodology adopted appears to skew up contributions for lower earners in particular, resulting in retirement balance projections that are potentially inflated by as much as 45 per cent.
"There are many other problems including assuming an unbroken career which is not at all representative for women, and setting retirement benchmarks that are not pegged to community living standards. This lowers the benchmark making surpassing it easier to achieve"
ISA does however agree with Grattan's conclusions about the age pension and need to adjust the asset test to restore coherent savings incentives.