As few as 5 per cent of Gen X and Y Australians will be able to save enough for a comfortable retirement using their own resources, according to new research from Griffith University.

But the situation will be eased for many by inheritance as 75 per cent of Gen X and Yers retiring after 2042 will inherit at least $110,000 from their baby boomer parents, the report, entitled Reinvention is the New Retirement, found.

The report found that because of inflation and price changes, in 26 years’ time a balance of over $2.09 million will be needed to achieve a comfortable retirement. That compares to $545,000 for a single homeowner or $$640,000 for a couple with a home and $867,000 for a single retiree and $1.1 million for a couple without their own homes today, according to the Association of Super Funds of Australia standard.

Depending on the rate of inflation that benchmark will be not reached by between 81.3 per cent and 93.8 per cent of the Gen X and Y cohort on their own resources, the report found. The outcomes are built on an average investment return of 5 per cent and with the worst outcome produced by inflation of 5.07 per cent [the long-term average] and the best on 2.5 per cent.

Source: Griffith University

The current wage growth drought is expected to continue, with the survey finding wages are not expected to beat inflation.

“Whilst these numbers represent our ‘worst case’ scenario analysed, they are a very real possibility we need to be prepared for – this low growth scenario has been the reality for countries like Japan for over 20 years,” said Professor Mark Brimble, lead author of the report.

While Gen X and Y will benefit from higher superannuation contributions over a full working life, the age pension benefits that have helped retirees to date appear to be waning.

“Earlier this year part-pension entitlements were tightened and the trend is to make it more difficult to get the pension,” Professor Brimble said.

This bleak scenario will be felt most by the 25 per cent of the age cohort that will not receive a significant inheritance, he said. However the report found that 75 per cent could expect an inheritance of $110,000 or more that could help build a significant retirement balance.

“$110,000 invested well for 25 years could grow to be over $1 million,” Professor Brimble said.

However, while baby boomers are likely to bequeath $3.5 trillion to their children, the breakdown of those benefiting will be very inequitable. Around 25 per cent of recipients will inherit between $110,000 and $285,000, another 25 per cent between $285,000 and $608,000 and the final group of 25 per cent above $600,000, the report found.

The outcomes predicted in the study are significantly lower than those produced by ASFA and others. ASFA says that around 50 per cent of people should be able to afford a comfortable retirement by 2050.

Another report by actuaries Willis Towers Watson found that about 38 per cent of singles would and 62 per cent of couples could expect to reach or exceed the ASFA comfortable retirement standard. However those calculations were made before allowable contribution levels were tightened in July.

Higher housing costs would also affect retirements as home ownership rates are declining and people are retiring with more housing debt, Professor Brimble said.

“Baby boomers have a pool of wealth centred on property and are often asset rich and cash poor. Gen X and Y will have a bigger superannuation and so more liquid assets. “