Is the Bank of Mum and Dad now expanding to superannuation?

Three in four Australians are planning to give some of their superannuation as an inheritance to loved ones.

parents putting money in piggy bank for kids future

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The Bank of Mum and Dad may be expanding, with a new survey showing three in four Australians are planning to leave some of their superannuation behind as an inheritance for their loved ones.

Partners and children are the most common beneficiaries, according to the Rethinking Retirement report published by Colonial First State (CFS).

The survey also shows that some workers have particular amounts in mind for their family members or friends.

More than half are aspiring to save more than 25% of their superannuation for inheritance purposes.

What is the Bank of Mum and Dad?

This is a term used to describe the rising trend of parents helping their children buy their first home via financial gifts and support.

They do so in several ways, including:

  • Providing free accommodation in the family home for several years after high school
  • Acting as guarantor on a home loan for their child's first home
  • Gifting or lending money to make up the deposit for a home
  • Buying a property with their child using savings or equity in their primary residence.

Many young Australians are simply unable to buy their first home without mum and dad's help.

According to the 2024 ANZ CoreLogic Housing Affordability Report, it now takes 11.1 years to save a deposit for a typical house and 8.5 years for a typical apartment.

And property prices continue to rise despite high interest rates.

After 15 months of consecutive price growth since January 2023, the national median price is now the equivalent of 8.3 years of income for houses and 6.4 years of income for apartments.

And the average home loan for houses now requires 52.7% of income to service. It's 40.5% for apartments. This is well above economists' long-held threshold for mortgage stress of 30%.

Why do workers want to leave superannuation to their kids?

The report surveyed 2,247 Australians, including 430 current retirees. It found there was a strong desire among Australians to help take care of their families by leaving some superannuation behind.

Assisting their children to buy a property or pay off a mortgage was among the reasons cited by survey participants.

When asked why they wanted to leave money to their children, one retiree said:

So they have enough to retire themselves.

The cost of buying a house is beyond reach for younger people now. A little help from me when I die might help pay off their mortgage and allow them to retire at an appropriate age.

Many also want to bequeath superannuation monies to charities and other causes they support.

Another retiree said:

 Charities desperately need funds and I'd like to help my kids like my parents helped me.

Will you have enough to leave your kids?

You can start answering this question by working out how much you need each year to cover your living expenses in retirement. Helpfully, Australia's official Retirement Standard provides some guidelines.

For a comfortable lifestyle, Australian couples aged 65 to 84 years need $690,000 in superannuation by their retirement age, plus a part-pension, to fund annual living expenses of $72,000.

Single retirees aged 65 to 84 need $595,000 in superannuation, plus a part-pension, to cover their $51,000 annual retirement living expenses.

For a modest lifestyle, couples and singles need $100,000 in their superannuation and a part-pension to cover annual living expenses of $46,944 for couples and $32,666 for singles.

The Retirement Standard's estimates assume you own your own home without a mortgage.

It also assumes you draw down all your superannuation capital, invest it, and receive a 6% return per year.

The report also revealed that Australians overestimate how much money they need in retirement.

Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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