Finance Your Super Why Gen Y is delusional about retirement goals

Why Gen Y is delusional about retirement goals

Gen Y money dereams
Gen Y is dreaming on retirement plans. Photo: Getty
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When it comes to their aspirations for retirement, Gen Y Australians – those aged between 21 and 34 – are seriously out of whack with reality.

Despite facing the prospect of having to put far larger amounts aside to get into the housing market than the generations before them, they think they can pull up stumps and retire well before their elders plan to.

New data from RaboDirect shows that Gen Y retirement age expectations have actually come down from 63.1 years-of-age three years ago to only 60.4 today.

'Tell em they're dreamin'
‘Tell em they’re dreamin’ The Castle‘s Darryl Kerrigan might have said.

That dramatic drop in the retirement age target comes at a time when Gen X (35 to 51 year olds) and Baby Boomers (52 to 70) have held expectations steady or reduced them. Gen X expects to hang up the work clothes at 65 and Boomers at 67.

How realistic are those Gen Y plans?

“People often have aspirations about retirement that are different from reality,” Ian Fryer, research chief with superannuation consultancy Chant West, told The New Daily. “As they get closer to retirement age, they realise the numbers don’t add up.”

David Knox, senior partner at super consultancy Mercer Australia, said Gen Yers are moving in the wrong direction in terms of retirement expectations.

“It’s inevitable that retirement ages will rise, not decline, and there are three reasons for that,” he said.

“People are living longer, so if they retire earlier they’ll run out of money or live a poorer retirement. People are entering the workforce later so they have less years to build up a super balance.

“With an ageing population we have to expect less and less from government, not more, in terms of things like the age pension, aged care and health care.”

The viability of early retirement is, of course, a numbers game. So just how much do you need if you want to retire? The Association of Super Funds of Australia (ASFA) says the equation looks like this:


Given that ambitious Gen Yers are likely to want the good life in retirement, ‘the comfortable’ category is probably the minimum they’ll aim for. So what sort of a retirement bundle do you need to earn to age 85, that is, the current life expectancy (it’s rising all the time remember)?

“It’s hard to put an exact figure on that because there are so many variables,” Dr Knox said. “What is the value of your home and do you plan to draw on that, what return are you earning, whether you retire before the pension age or not.”

ASFA has done a rough calculation on the situation for a single and says it looks like this. A single needs at least $475,940 to fund a modest retirement and $863,680 for a comfortable life.

The figures don't add up.

The figures don’t add up

But Gen Y retirement aims are actually moving away from that target. Back in 2012, Gen Yers thought they might need around $750,000 to fund 20 years of retirement, but cut this back to $636,100 by 2016.

The figure they actually think they’ll reach is only $481,059. So that means what Gen Y retirees believe what they’ll have at 65 is only 55 per cent of what ASFA reckons they would need to live the life they want, and 75 per cent of what they think they’ll need.

Let’s look at what they have at the moment. The average Gen Y super balance is $97,517.

Using the ASIC Moneysmart website calculator you find that a 31-year-old on $90,000 a year getting 12 per cent super a year from their employer (a rate that won’t cut in till 2025, so we’re being generous) would only have built a balance yielding $28,553 a year if they retired at 60.

ASIC calculations.
ASIC calculations.

And by age 67 they would already be relying on a part pension. So unless a Gen Yer is going to make massive extra super contributions, which the vast majority won’t afford, the aim of retiring at 60 is hopelessly optimistic.

But all is not lost. Dr Knox said Gen Yers would be able to cut back work hours from age 60 to get a better lifestyle while still earning money.

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