We present two new metrics to assess the adequacy of retirement savings and estimate these metrics for a representative sample of the Australian population aged 40 to 64 using data from the HILDA survey. Our estimates support the widely held belief that most individuals are not ‘on track’ to achieve a comfortable standard of living in retirement, although couples appear better prepared than singles. We also estimate the relative expected contributions of the various ‘pillars’ of retirement income (compulsory superannuation contributions, voluntary superannuation contributions, the Age Pension and voluntary savings) and find that ignoring the last of these pillars is a significant omission. The metrics presented here may provide a better way to communicate adequacy to individuals, with the goal to improve saving.

This article uses data from the Household, Income and Labour Dynamics in Australia (HILDA) Survey. The survey was initiated and is funded by the Australian Government Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA), and is managed by the Melbourne Institute of Applied Economic and Social Research (Melbourne Institute). The findings and views based on these data should not be attributed to either FaHCSIA, or to our employers. It is widely believed that most Australians do not currently have sufficient savings to fund their retirement (Hajkowicz, Cook and Littleboy, 2012; Institute of Actuaries of Australia, 2012). The Government expects that for the foreseeable future even those retirees who will have made significant contributions in superannuation throughout their working lives will rely substantially on the Age Pension (Australian Government, 2010).

It is an open question, however, how to best assess the adequacy of retirement savings during the pre-retirement years. How do we determine whether there is a shortfall in retirement savings and how large it is? What observable individual characteristics (current age, wealth, income etc.) are best able to explain likely consumption shortfalls? How is information on shortfalls best presented to individuals to make them aware of their impending retirement income outcome and induce them to increase their savings? This article is part of a larger project seeking to provide answers to such questions.


Download Measuring Retirement savings Adequacy


This paper was presented in July 2013 at the 18th Melbourne Money and Finance Conference (MMFC), which explored the theme Financial Sector Evolution – Prospect and Determinants.

For more papers presented in the conference, please click here.