Start fattening that nest egg

BABY boomers have not saved enough for retirement and could face tough government measures aimed at boosting their nest eggs.

By InvestSMART · 7 Aug 2011

By InvestSMART ·
7 Aug 2011

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BABY boomers have not saved enough for retirement and could face tough government measures aimed at boosting their nest eggs.

The government has admitted it cannot fully fund the pension for the unprecedented number of retirees who are set to leave the workforce in the next 10 years.

A significant fall in Australian stocks on Friday likely wiped out last year's 8.9 per cent average gain by balanced superannuation funds, where most Australians have their retirement savings invested.

It followed the big losses suffered during the 2008 financial crisis, when many superannuation funds were left exposed to the effects of the collapse of the US subprime-mortgage market.

The Assistant Treasurer, Bill Shorten, said the government was considering measures that included raising the compulsory employer contribution component of remuneration and reverse-mortgaging to prevent a superannuation crisis.

The government was closely monitoring baby boomers' savings patterns for signs of collapse, he said. Many self-funded retirees would benefit from increases to the pension, Mr Shorten said.

The number of people age 60 and over still paying off a mortgage had increased from 4.2 per cent in 1996 to 9.5 per cent in 2006, the National Centre for Social and Economic Modelling has said.

Another concern was prospective retirees who relied on their super to pay down debt, Fiona Reynolds, of the Australian Institute of Superannuation Trustees, said. Research by the institute had found that more than half of all retirees had taken all or part of their super as a lump sum, Ms Reynolds said.

"People use their super payout for a holiday, a caravan or a new car or a fridge to last through retirement," Ms Reynolds said. "But I think for the vast majority of people it's used for repaying debt."

The Opposition's financial services spokesman, Mathias Cormann, said the government should exercise caution in regulating the way Australians accessed their superannuation.

"If we said we would reduce choice about how retirees access their savings, there would be an immediate impact on voluntary contributions," he said.

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Frequently Asked Questions about this Article…

Why are baby boomers at risk of not having enough retirement savings?

The article says baby boomers haven’t saved enough and the government admitted it can’t fully fund the pension for the unprecedented number of retirees expected to leave the workforce in the next 10 years. Factors mentioned include market volatility wiping out recent gains, rising mortgage burdens among older Australians, and many retirees taking lump-sum super withdrawals that can reduce long-term nest eggs.

How can recent stock market falls affect my superannuation and retirement nest egg?

A significant fall in Australian stocks was likely to wipe out last year’s 8.9% average gain for balanced superannuation funds, where many Australians keep retirement savings. The article also reminds readers that past shocks, such as big losses during the 2008 financial crisis, exposed super funds to major declines—so market volatility can materially reduce retirement balances.

What government measures are being considered to boost retirement savings and protect superannuation?

According to the article, the government has been considering measures including raising the compulsory employer contribution component of remuneration and exploring reverse-mortgaging options as ways to prevent a superannuation crisis. Officials are also closely monitoring baby boomers’ savings patterns for warning signs.

What did the article say about reverse-mortgaging as a policy option for retirees?

The article notes that reverse-mortgaging was mentioned by the Assistant Treasurer as one of the measures under consideration to support retirees and prevent a superannuation crisis. The piece does not provide details on how reverse-mortgaging would be implemented.

Are retirees taking lump-sum superannuation payouts and what are they using them for?

Research cited in the article from the Australian Institute of Superannuation Trustees found more than half of retirees had taken all or part of their super as a lump sum. Fiona Reynolds said people use super payouts for holidays, caravans, cars or appliances, but for the vast majority the lump sums are used to repay debt.

How has mortgage debt among older Australians changed and why does it matter for retirement planning?

The article cites the National Centre for Social and Economic Modelling saying the share of people aged 60 and over still paying off a mortgage rose from 4.2% in 1996 to 9.5% in 2006. Higher mortgage burdens in later life can erode retirement savings and increase reliance on government support or other measures.

Could tighter rules on accessing superannuation affect voluntary retirement contributions?

Yes. The Opposition’s financial services spokesman, Mathias Cormann, warned in the article that reducing choice about how retirees access their savings could have an immediate negative impact on voluntary contributions, suggesting policy changes might influence saver behaviour.

What practical takeaways for everyday investors does the article suggest about boosting your nest egg?

The article highlights several risks everyday investors should watch: market volatility can erase recent gains in balanced super funds; many retirees use lump-sum withdrawals to repay debt; and mortgage levels among older people have increased. It also signals potential policy changes (higher compulsory employer contributions or other measures) are being considered, so keeping an eye on your savings, limiting high late-life debt and understanding how market downturns affect your super are sensible steps.