Finding the Goldilocks zone

I came across a global study showing the 10 cities around the world where people pass away with pots of money left unspent. Surprisingly, Canberra came in at third spot.

Research by UK retirement website, Our Life Plan, found Canberrans are dying with an estimated fortune of £283,110 ($A532,513).

The Swiss capital of Bern is the city where residents pass away leaving the most money behind – an estimated £306,781 ($A577,037) per person. That’s followed by Luxembourg City with £298,856 ($A562,131).

At the other end of the scale is Seoul. Living to the ripe old age of 83, residents of Seoul are not leaving anything behind for loved ones to share – in fact, they’re dying in debt. Looking at the data, Seoul residents owe nearly £500,000 ($A940,471) in debt when they pass away.

Other cities to make the list of places where people pass away leaving a mountain of debt behind are Mexico City and Budapest. The good news is that not one Australian city made that list.

There is always a fine line between spending all your money before you depart and leaving too much for your loved ones to squabble over. Finding the right balance can be challenging, and it’s not as simple as being cautious about spending because you’re worried about outliving your money.

A study by the CSIRO found that retirees with super savings of more than $100,000 typically invest their money in an allocated pension (or account-based pension). It’s like a managed fund for your nest egg though still within the tax-friendly environment of super.

A key feature of allocated pensions is that minimum annual drawdowns apply. You have to – by law – withdraw a set percentage of your money each year. Pre-Covid this was 4% for under-65s, rising to 11%-plus for over-90s. These limits were halved in 2020 in response to the pandemic, and the Morrison government recently announced that the lower limits will stay in place until 30 June 2022[1]. There are no limits on the maximum amount you can drawdown each year.

What’s interesting, is that the CSIRO[2] found the vast majority of retirees with allocated pensions stick to the minimum drawdown. Only one in four withdraw more than twice the minimum limit for their age. This means a decent chunk of money is left in their account earning compounding returns. The upshot is that plenty of retirees could pass away with a significant amount of their super still intact.

There are complex reasons why retirees may stick to the minimum withdrawals from super. We know that choice is stressful for humans. It can just seem easier to stick with the mandated minimum rather than make a planned decision about how much to drawdown each year.

On top of this, a serious change of mindset is needed to shift from growing super savings to dipping into the money as a source of retirement income.

On the plus side, a study by National Seniors[3] found older Australians are becoming less focused on leaving a substantial inheritance for their adult kids – something that once contributed to retirees living in genteel poverty. Only 3% of seniors say they want to preserve all their savings for the next generation. 

Drawing up a spending budget is an important starting point to know how much money you need to live on each year. As part of a longer term plan, finding the financial sweet spot that lets you enjoy a decent retirement lifestyle without exhausting your funds prematurely, is an area where professional advice can help.

Speaking personally, I’ve put my kids on notice that their parents intend to  ‘ski’ (spend the kids’ inheritance) during our retirement. Hopefully, we get the timing of the ski trip right for all our sakes.

Here’s to Goldilocks moments – not spending too much and not spending too little, in our golden years.

Effie Zahos is an independent Director of InvestSMART, money commentator at Canstar.com.au and Channel 9 Today Show.