For many people the day they retire and take their superannuation is the day they receive the biggest unencumbered wad of cash they have seen in their lives.

New research from the Centre of Excellence in Population Ageing Research (CEPAR) at the University of NSW has identified what people are spending their retirement funds on.

About 65 per cent of all super benefits paid out was in the form of allocated pensions while another 35 per cent was delivered in lump sums in 2016.

While the percentage of super taken in lump sum payouts has declined from 75 per cent in 1994, the size of super balances has grown dramatically since then, so the actual dollar amount taken in lump sums is much larger now.

Where the money goes

CEPAR rresearched what people are spending lump sums on. This is what they came up with.

About 20 per cent of people spent their lump sums on paying down home mortgages or home improvements, at an average of $85,000.

About 15 per cent of people spent their lump sums on other unspecified investments at an average value of $75,000.

About 4 per cent of retirees recycled the lump sum back into super, with an average spend of $75,000.

A further 11 per cent of people spend about $60,000 buying or paying off a vehicle. Another 10 per cent spent $50,000 on medical or other living expenses.

About 14 per cent of people spent $40,000 on a holiday, while 21 per cent spend $30,000 clearing other debts. The remainder spent about $45,000 on unspecified items.

CEPAR said the most common lump sum spend was between $10,000 and $25,000 while about 17 per cent of people took between $25,000 and $50,000.

The average size of lump sums.

The reduced importance of lump sums to retirees with smaller balances is demonstrated by the decline in the percentage taking out between $500 and $10,000.

In all other categories higher percentages of people were taking lump sums in 2015-16 compared to 2003-04.

Holding onto their savings

Of those getting a super income stream more than 70 per cent received an allocated pension with the average payout being $25,000 in 2016.

Retirees appear to be getting more conservative with their retirement income. Not only are fewer people taking lump sums, almost half (48 per cent) of retirees withdraw only the minimum amount from their super legally required according to their age.

The CEPRA research found some had even reduced their drawdowns when changes to super rules allowed them to withdraw a smaller amount. Super rules demand retirees withdraw between 5 per cent and 14 per cent depending on age.

Another 28 per cent took a flat amounts “which implies that they preferred to draw less money over time, in real terms”, the report said.

Renters lose out 

The super system benefits home owners over renters with the latter having far smaller balances. Renters are not able to devote as much to super in their 30s, 40s and 50s as home owners, giving them dramatically lower balances.

This could be partly a result of lower incomes but study author Rafal Chomik sees another factor at play.

“Rent assistance is supposed to help renters but it is indexed to consumer prices, not rental prices, which have risen much more strongly in recent years. As a result poverty levels among renters are quite high.”

Improvements for women

While the gender gap in super savings has expanded to $105,000, it had almost halved in real terms since 2006, the survey found: “In 2016, women’s balances at age 60-64 were 64 per cent lower than men’s; down from 117 per cent 10 years earlier.”