What is it about?
We look at the progression of the assets of ten thousand pensioners over 8 years. On average, pensioners preserve their financial wealth and their homes and leave substantial bequests. There are considerable differences between people but some patterns. Younger households generally run down financial wealth, while older households maintain their assets or save. The Means-tests provide an incentive to spend faster. Average drawdown rates are 3% higher for pensioners subject to the income test and 9% higher for those subject to the asset test relative to full pensioners. Loss of a partner is linked to large falls in assets.
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Why is it important?
Overall, the data suggest that age pensioners live well within their means. On average, consumption stays at modest levels, even among wealthier pension households, and poorer pension households appear to consume even less than the full pension payment. Setting aside precautionary and bequest motives, retirees could spend more in retirement and still not exhaust their assets. This suggests a greater role for policy settings and annuity designs that provide affordable insurance against risks late in life.
Perspectives
The theory suggests that retirees should buy life annuities. They would be able to spend more and reduce the risk of running out of the extra income provided (over and above the Age Pension.) People are however reluctant to buy annuities for various reasons, but these results suggest that they many not understand the risks in later retirement and we should make greater efforts to persuade them that annuities will improve their financial position.
Anthony Asher
University of New South Wales
Read the Original
This page is a summary of: Age pensioner decumulation: Responses to incentives, uncertainty and family need, Australian Journal of Management, May 2017, SAGE Publications,
DOI: 10.1177/0312896216682577.
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