Australians with a few decades of working left fear they will need much more money to retire than those currently enjoying their twilight years. (Source: Getty)
Australians with a few decades of working left are worried their retirement is going to look very different to those in their twilight years now. A new report has revealed that working-age people fear they will need almost double the amount of money to get by.
At the moment, a single person would need $53,289 per year to have a comfortable retirement, but Vanguard’s report shows Aussies under 45 reckon they will need around $100,000 per year per household for the same lifestyle. The report suggested that trying to squirrel away enough superannuation and investments for that amount of annual expenditure could be unrealistic.
“For most Australian households, achieving $100,000 in inflation-adjusted annual retirement income will be challenging,” it said.
Vanguard’s 2025 How Australia Retires report looked at several indicators that could be influencing this massive jump in retirement expectations, but one of the biggest concerns was around homeownership.
Only 8 per cent of those who had already retired were still paying for a mortgage this year.
But that might not be the reality for younger Aussies.
More than one in three Millennials (36 per cent) expect they will have a mortgage when they retire, compared to 27 per cent for Gen X.
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Homeownership rates have been steadily declining due to a raft of factors, including increasing property prices, crippling cost-of-living pressures, and changing attitudes towards renting.
Back in 1991, when Baby Boomers were aged 25 to 39, 70 per cent of them had bought their own home, according to Ray White.
In 2006, when Gen X were in that age bracket, 65 per cent were homeowners. But that’s dropped to only 55 per cent for Millennials.
Vanguard wrote that Aussies who retired with a mortgage had much lower confidence and negative sentiment about their later years compared to those who are debt-free.
The Grattan Institute found homeownership rates amongst the poorest 40 per cent of Aussies aged 45 to 54 declined from 68 per cent in 1981 to just 54 per cent in 2021.
“If this continues, a growing share of future retirees may face retirement without owning a home,” Vanguard wrote.
“As more future retirees are likely to enter retirement while still paying off a mortgage or renting, their financial needs and challenges may differ significantly from those of current retirees.”
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Vanguard found that one in four working-age Aussies would pay off their mortgage in a single transaction using their superannuation, which could massively impact their retirement.
Vanguard highlighted five areas that could help improve sentiment, confidence and expectations around retirement:
Having a solid retirement plan
Boosting financial literacy
Being familiar with the retirement system
Making voluntary super contributions
Engaging with their super provider at least twice per year
“One of the most impactful things Australians can do to improve how they feel about retirement is to be well planned, but it’s difficult to have a plan if you don’t understand the retirement system or financial concepts like compound interest,” the report said.
Nearly one in two (48 pr cent) working-age Aussies had no retirement plan at all.
“That’s like trying to run a marathon without knowing where the finish line is,” Mr Shrimski said.
“Having a plan can help Australians avoid the fear of running out — or FORO — which is one of the biggest sources of anxiety in retirement,” Daniel Shrimski, Managing Director, Vanguard Investments Australia, said.
“It’s not just about having enough money but also about having the confidence that your lifestyle is sustainable.”
The report found that retirees who had a good idea or clear understanding of what actions they needed to take were three times more likely to feel highly confident about funding their desired lifestyle in retirement than those without.
It noted that retirement decision-making can be complex, but there are online tools that can help boost peoples’ understanding of certain concepts.
Vanguard pointed to ASIC’s MoneySmart site, which is a government-backed tool that provides free articles and tools to help you manage your finances, while also explaining certain financial terms to help get your head around reducing debt, building wealth, and planing for the future.
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