Why your spending habits in the first years of retirement are crucial


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Your spending habits in the first five years of retirement will be crucial when it comes to protecting that all important nest egg, new research shows.

National Seniors Australia, in partnership with Challenger, found more than half of Australian retirees had drawn down some of their retirement savings in the space of five years. And it means they're now more anxious about how long their savings will last.

The report shows two-thirds of retirees who retired within the past five years expect their retirement savings to dry up within the next two decades.

retirement dry up spending saving

And more than half of older Aussies are worried about outliving their savings. Almost 60% of women are worried compared to less than 47% of men.

"One way that retirees can make their money last longer is to cut back on spending. This might stop the money running out, but it will mean that retirees might not achieve their preferred lifestyle," the report says.

At a personal level, planning early for retirement can help alleviate some of the stress.

Kaylee Garden, a financial planner with Garden Financial Services, recommends mapping out a budget based on your own unique circumstances and goals.

"Think about any lump sums you may need, for instance to pay for an overseas trip, a new car or any renovations you may wish to complete on your home," she says.

National Seniors chief executive John McCallum says Australia has one of the best pension systems in the world, "yet Australian retirees are still showing high levels of worry that they will outlive their savings".

"This shows a need for better advice and education to help older Australians manage their savings so they can have the confidence to spend their money and enjoy retirement," he says.

Between the genders women are worse off - a function of earning and working patterns, marital status, and life expectancy. They're more worried than men, rely more on the age pension, and are more likely to have less than $500,000 in retirement savings - less than the ASFA defined comfortable standard.

"On average, women live three years longer than men, but our super system doesn't cater for this difference in longevity," says Challenger's chairman of retirement income, Jeremy Cooper.

"They fear running out of their own money, even though the safety net of the age pension will be there for them, so it's important that super funds explore ways of providing more lifetime income to their members."

Still, rules of thumb can provide useful starting points. According to the Association of Superannuation Funds of Australia's Retirement Standard, single people will need $545,000 in retirement savings while couples will need $640,000 for a comfortable retirement.

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David Thornton was a journalist at Money from September 2019 to November 2021. He previously worked at Your Money, covering market news as producer of Trading Day Live. Before that, he covered business and finance news at The Constant Investor. David holds a Masters of International Relations from the University of Melbourne.