The Retirement Puzzle
26 Pages Posted: 21 May 2020
Date Written: May 04, 2020
The present-day retirees may not be as well off as they expect to be during their retired life. Given the current state of the world – higher life expectancy, close to zero real interest rate and the economic turmoil caused by the Covid-19 pandemic, a superannuation fund as large as $545,000 may not be enough to support a comfortable lifestyle. The rules of means-tested age pension provide incentives for a broad spectrum of people to deplete their superannuation in the early years of retirement, with significant negative consequences for government finances. Spending at retirement does not increase proportionally with assets. For some range of superannuation balances, the net present value of spending could increase more than the increase in assets, as the net present value of the age pension does not decline at par with increases in assets. In other asset levels, the opposite happens. The distributional impact of the age pension is unequal across different asset levels and is regressive to some extent.
Keywords: Comfortable Retirement, Means-Tested Age Pension, Superannuation, Longevity
JEL Classification: G17, G18, G51, H55
Suggested Citation: Suggested Citation