Insights

Should retirement savings be assumed bequests? Government says no

A new analysis paper has questioned whether encouraging retirees to spend all their retirement savings in their lifetimes is a good idea.
The post Should retirement savings be assumed bequests? Government says no appeared first on The Motley Fool Australia. –

asx share price swing represented by old lady on swing

A new analysis paper has questioned whether encouraging those over retirement age to spend all their retirement savings in their lifetimes is a good idea.

In his analysis paper, Terrence O’Brien states that the Australian Government’s Retirement Income Review implies policy directions that will encourage retirees to spend their life savings, including the equity in their homes, during retirement.

At this point in time, the Government’s Retirement Income Review is just a report. It’s purely a proposal looking at forward-moving measures and there’s no promise that any proposed policies will be initiated just yet.

Let’s look closer at what information the government report and the analysis paper contain.

What does the government’s report contain?

The Australian Government’s Retirement Income Review is an overview of the Australian retirement income system. It has found the system to be effective and broadly sustainable. Though, it has offered a number of suggestions to strengthen it. 

Three of the report’s suggestions are as follows.

Firstly, the report notes that the rate of super paid to employees is sufficient. But, retirees’ income from their super should be taxed more. 

Next it states some of its contributors believe the equity in a retiree’s home should be taken into account when applying for the age pension.

Finally, it suggests retirees might purchase a longevity protection product to avoid running out of money in retirement. 

The report says people worried about outliving their savings may make financial decisions which diminish their quality of living. Instead, retirees could purchase longevity protection plans that would provide them with an income after a certain age. 

O’Brien says these measures come a long way from what is a common Australian belief – that owning a home allows you financial freedom in retirement.

Would these measures be fair? O’Brien thinks not

O’Brien states that, if adopted, policies within the Retirement Income Review would encourage retirees to spend their entire life savings.

It would do so by placing higher taxes on superannuation withdrawals and decreasing access to the age pension for those who own their own homes. Thus, encouraging retirees to purchase new longevity protection products and spend the equity in their homes.

According to O’Brien, these measures combined might diminish retirement savings and inheritances.

O’Brien says if a house’s equity is taken into account when applying for the age pension, accessing the equity within their homes may become a necessity for retirees.

Further, purchasing a longevity protection product would rarely be necessary if policies don’t encourage more spending. O’Brien said:

In effect, preferred policy directions would incline each generation towards consuming fully its own lifetime savings.

Policies would be shaped by the idea that retirement income of 65% to 75% of the average of post-tax income earned in the last 10 years of work is adequate for the final 30-or-so years of life.

O’Brien goes on to say the government’s attitude to saving and placing equity in property has changed in recent times. To outline this shift, O’Brien quoted Robert Menzies’ 1942 argument for frugality and homeownership: “Frugal people who strive for and obtain the margin above… materially necessary things are the whole foundation of a really active and developing national life.”

O’Brien’s criticisms outline a question for the future.

Are policies shifting away from the idea of the ‘forever’ home – one to leave to those we love? Maybe, in the future, retirees will routinely downsize early in retirement.  

These Dividend Stocks Could Be Your Next Cash Kings (FREE REPORT)

Motley Fool Australia’s Dividend experts recently released a brand-new FREE report revealing 3 dividend stocks with JUICY franked dividends that could keep paying you meaty dividends for years to come.

Our team of investors think these 3 dividend stocks should be a ‘must consider’ for any savvy dividend investor. But more importantly, could potentially make Australian investors a heap of passive income.

Don’t miss out! Simply click the link below to grab your free copy and discover these 3 high conviction stocks now.

Click Here For Your Free Stock Report

Returns As of 15th February 2021

More reading

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Should retirement savings be assumed bequests? Government says no appeared first on The Motley Fool Australia.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;


To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.


An active and funded account with a positive trading balance is required to continue to have access to the tools;


Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;


Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!