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How Australia’s golden oldies are spending their lump sum super payouts 

November 8th, 2018

The New Daily’s YourSuper Editor, Rod Myer, reports on new research that reveals how much people are receiving as retirement lump sums on and how they are spending this money.

For many people the day they retire and take their superannuation is the day they receive the biggest unencumbered windfall 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 researched what retirees are spending lump sums on. This is what they came up with:

  • about 20 per cent spent their lump sums on paying down home mortgages or home improvements, at an average of $85,000
  • about 15 per cent spent their lump sums on other unspecified investments at an average value of $75,000
  • about 4 per cent recycled the lump sum back into super, with an average spend of $75,000
  • a further 11 per cent 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 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 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 income stream legally required according to their age.

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

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

The unabridged version of this article was first published in The New Daily, 2 November 2018