A World Economic Forum report has warned that many western people will outlive their retirement savings.
Despite having one of the best retirement systems in the accumulation phase, the report paints a worrying picture as Australians are projected to live longer than initially expected, and longer than their savings can sustain them according to reporting by the Australian Financial Review.
Australia's system is indeed respected around the world. Almost every employee is contributing, via their employer, 9.5% of their wages towards their retirement.
Even Australian adults who work for minimum wage could retire with hundreds of thousands of dollars in superannuation, assuming they work full time throughout their life, are invested in growth options and aren't with a super provider where the fees are too high.
Whilst Australians have the joint highest average savings of 9.7 years, joint with Americans, Australians also have a high level of life expectancy after the savings have been used up. For Australian men it's 9.9 years and for women it's 12.6 years.
Why is there a disconnect between the figure for Australian men and women?
Well, a man's superannuation balance is usually higher than a woman's. There are a variety of factors that affect the average balance for each gender.
Obviously taking a year or two (or more) off to have children will result in less super contributions during those years, resulting in a smaller balance and the difference is then compounded over many years.
A pay gap will obviously also cause a difference. If a female's wage is less than the male then she's getting a smaller 9.5% contribution. Don't forget superannuation is a decades-old system, so even if gender pay is mostly equal now, a woman's wage 20 years ago could have been unfairly lower and the difference in super would be more apparent today at retirement after years of compounding.
Another reason could simply be that a higher percentage of men are in the workforce (or worked in the past) than women, meaning they were the breadwinners and receivers of the superannuation contributions.
In any case, it's extremely important for everyone to build their retirement fund as much as possible as long as it doesn't impede your living today. There are tax benefits to saving more in super, but you can invest outside of super – which is what I'm also doing.
We've seen during the royal commission how important it is to have an interest in your super. Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ), National Australia Bank Ltd (ASX: NAB) and AMP Limited (ASX: AMP) did not seem to be acting in the best interests of their clients.
