Robert Zammit: Baby boomers, ignore calls to drain your superannuation! It’s your money, spending it your way!

The Federal Government and many superannuation industry participants seem to have the common agenda that people should spend all of their super in retirement. There is a belief that people are living more frugally than they should be, and they should draw down more on their super in retirement and die with nothing in the fund. For some, this will most certainly happen. But for many this idea may come as a shock. This message fundamentally conflicts with the story we’re fed throughout our working careers: that we need to work harder and longer to save for our retirement as we won’t have enough. After all, running a Federal Budget is much easier when more taxes are being collected from the masses. The trouble with this expectation is that it fails to understand everyday Australian retirees’ personal goals, in particular those with children and the stigmas around retirement. As a financial adviser, having provided advice to thousands of everyday retirees while sitting around the kitchen table discussing retirement plans, you start to realise a common trend — something, perhaps, that is difficult to be observed from Parliament House or the marble boardroom table. One of the goals which drives at the very essence of retiree spending is: “What financial legacy do you want to leave behind when you pass away?” Basically, do you want to leave anyone any money when you die? The two common responses are along the lines of: “I want to make sure my spouse is OK” or “I would like to leave my children something.” This selfless desire to look after our family members’ financial wellbeing is something embedded into Australian culture. Historically, parents have made countless sacrifices for their children and when it comes to money it is no different. Many retired parents will spend less, travel less, work longer, work multiple jobs all to ensure that they can fulfil their goals of financially assisting their children. So spending all of their superannuation is generally not in their overarching plan. If the Government wanted to encourage people to spend all of their super in retirement, it would need to quell some common concerns around retirement. The biggest two are that aged care and medical issues are expensive. For some individuals these costs are reasonable, while for many they can be daunting. Retirees generally prefer to keep some powder dry so they have enough savings to fund such expenses — and obviously counter to the Government’s agenda of spending all of your savings. One of the proposed solutions to the presumed problem is annuities or defined benefit income streams. The way an annuity normally works is that you give your money — in this case your superannuation — to the annuity provider or industry fund and they “guarantee” to pay you a regular income stream for life. The selling point for retirees is the stability and the fact it lasts your lifetime, which is great if you have longevity in your family and live past the average life expectancy. The downside is that if you pass away early, your benefits are foregone and are used to pay for someone else who lives longer, which is obviously disastrous if you pass away early. Annuities may not be an ideal solution for someone wanting to leave a financial legacy to their children. As baby boomers have learnt over the years, there are no guarantees in life. When claims of “guaranteed” income for your lifetime are thrown around even the unsophisticated investor becomes cautious. I recall during the Global Financial Crisis many annuity or defined benefit income streams came under pressure to maintain the same payment to investors as asset prices which support these incomes came crashing down. Australians should be concerned with the Government’s overreaching agenda dictating what happens with our money and retirement savings. The choice of what happens with our money should not be taken away. Instead, it should be left for each of us to decide what is important. After all, we all make choices during our working career on how much we save along the way to fund our retirement. For those that save more, they potentially have more at risk with this change in agenda. Robert Zammit is partner and director of financial services at RSM Australia