Retirement expectations 'unreal'

Most under-35s have unrealistic expectations about their retirement

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published August 13, 2013 10:58 am AEST

It seems many Australians under the age of 35 have unrealistic expectations about their retirement, with more than half expecting to retire before they hit 65.

The problem is most don't know if they'll have enough to retire on or how they will pay for it, according to the Commonwealth Bank's (ASX:CBA) Great Expectations Report, to be released today.

The report found that 81% of people aged 25-34, and 83% of those aged 18-24 believe their lifestyle once they retire will be the same or better than it was now. Either they have a lowly lifestyle now and pretty much anything would be better, or their expectations are just wishful thinking. Just 14% of people pay extra into their super, above their employer compulsory contributions, currently set at 9.25%. Half say the money for their retirement will come from their current or future financial portfolio, while just a third planned to increase their super contributions.

It seems most people think compulsory super will be enough for retirement, but given the average under 35-year-old has less than $25,000 in super, it appears they may be deluding themselves and could be in for a shock come retirement time. Data from the Australian Securities & Investments Commission (ASIC) suggests someone aged 65 today would need $524,000 in super to live comfortably during retirement. That number appears low, given the retiree may live for another 20 or 30 years, or more.

Other findings include:

79% expect to be able to afford nice clothes, buy the latest household goods and services, and spoil their kids with presents "whenever they feel like it"
73% expect to take regular holidays, and 54% expect to be able to afford overseas holidays.

With term deposits paying miserable returns these days and many retail fund managers charging outlandish management fees, it seems many under 35s have unrealistic expectations about how they are going to grow their next egg.

Foolish takeaway

Here at the Motley Fool, we might suggest that investing early, in solid, good quality, dividend paying stocks like CSL Limited (ASX:CSL), Woolworths (ASX:WOW) and Telstra Corporation (ASX:TLS) over the long term, will go a long way towards growing your financial portfolio and meeting your retirement expectations.

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Motley Fool writer/analyst Mike King owns shares in Telstra, Woolworths and CSL.

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