CLUSTER PROJECT 7: MODELLING RETIREMENT OUTCOMES FOR ALL AUSTRALIANS

Project Overview:

This Cluster Project considers the superannuation journey across the life course, from the accumulation phase, to conversion and the decumulation/ distribution phase. The research design of this project is outcome-oriented, emphasising the contrasting experiences of different age groups, dynamic risks and cohort outcomes. The research will consider the ability of a range of investment strategies to achieve retirement adequacy for Australians, including the two large liabilities of an ageing population: later life medical expense and the costs associated with aged care.

Principal Researcher: Associate Professor Robert J Bianchi (Griffith University)

Research Team: Professor Michael E Drew (Griffith University) and Dr Adam N Walk (Griffith University)

Outcomes:

In view of ongoing concerns about the adequacy of retirement incomes for Australian workers, this study compares the previous 9 per cent Superannuation Guarantee with the 12 per cent rate, effective from 1 July 2025. We use long-horizon historical returns data from various asset classes to simulate retirement outcomes of workers investing in typical asset allocation strategies. Our findings indicate that the retirement adequacy of workers could be more simply improved through investment strategy design that mitigates sequencing risk rather than a broad-based increase in the contribution rate.

Summary | Working Paper

We  examine the  impact  on retirement  income  levels, income  stability  and longevity risk of accounting for costs associated with age-related health treatment and aged care services during the retirement phase. To measure the impact of these costs on income sustainability and longevity, we derive asset return data using historical bootstrap simulation to determine an optimal withdrawal income during retirement using dynamic optimisation techniques. We show that the greatest risk to income sustainability occurs when unexpected health costs translate into greater longevity, particularly for conservative investors. Paradoxically, this means that high costs associated with health treatment may result in a longer life, however, without commensurate adjustment in asset allocation towards assets with a greater risk-return profile it also risks premature wealth depletion. We further show that the optimal withdrawal rate is highly sensitive to the timing of health costs and moderately sensitive to later-life aged care costs. We find that for a broad set of circumstances the risk of premature ruin can be mitigated through a dynamic lifecycle strategy during the retirement phase.

Summary | Working Paper

Using simulation techniques and current Indigenous Australian demographic and employment data, we estimate the superannuation balance of the typical Indigenous worker and compare this with the average non- Indigenous Australian. Our findings indicate that the retirement outcomes of Indigenous workers are approximately 27 per cent lower than the average non-Indigenous worker. In addition, only 20 per cent of full-time employed Indigenous workers accumulate  enough superannuation savings to maintain a comfortable standard of living in retirement. The simulation results suggest that the differences in current earnings play an important role in retirement adequacy.

Summary | Working Paper