It is often asserted that Australians are too conservative in retirement, not spending as much as they could and still having substantial retirement savings when they die.

While there may be an element of truth in such assertions, at least for some retirees, it is likely that things are a bit more complex. However, I have faith in the ability of many Australians, including retirees, to make decisions that are more or less in their best interest.

The evidence on underspending is a bit patchy, relying mostly on Age Pension data, SMSF administrator records and longitudinal data from a few funds. Longitudinal records of retiree asset holdings are hard to come by. Adjusting for purchasing power changes over long periods also complicates matters.

Cross sectional data suggests that many older people reduce their superannuation balance to nil over time. ABS data for 2017-18 indicates that 62 per cent of males and 51 per cent of females aged between 65 and 74 had superannuation but these dropped to 34 per cent and 26 per cent respectively for those aged 75 and over. The figures for those aged 75 and over are also well down on the coverage figures 10 years earlier for those aged 65 to 74 of 48 per cent for males and 37 per cent for females.

Superannuation balances for those aged 75+ tend not to be large, with the median in 2017-18 for males $208,000 and for females $126,100.

Superannuation is typically one of the only financial assets held by an individual or couple, albeit the most substantial asset apart from the family home in most cases. Given that superannuation is tax advantaged and that additional contributions can be hard or impossible to make after retirement, it is not surprising that a retiree might choose to run down other assets before their superannuation balance. Especially when a balanced super fund is delivering higher returns than any term deposit.

Even if retirees underspend on an objective basis, policy levers to encourage greater spending are not easy to develop. There are even some who would move policy settings in the opposite direction.

However, while many SMSF members would like there to be no minimum drawdown factor, that is not a realistic policy setting. Minimum drawdown factors for account-based pensions are basically a mechanism for controlling the amount of tax concessions delivered during the retirement phase. A retiree does not actually have to spend the money they draw down, it can be put into a bank account or otherwise invested. The same applies to income received from a term or life annuity.

There are also other factors at work. While life annuities and other longevity products allow individuals to insure themselves against the financial consequences of longevity (as a sort of reverse life insurance policy) not everything can be insured against.

Many people worry about aged care and need to provide a decent size accommodation bond to avoid unduly nasty residential aged care accommodation. Other risks are out of pocket medical expenses, the need for major home repairs, replacement of a car or substantial repair costs.

As an owner of a 1930s house, I have concerns about potential repair costs. A recent plumber’s visit to clear a sewer pipe (which had become a tree irrigation system) resulted in a pipe relining quote that equated the plumber’s hourly rate to that of a general surgeon.

Many individuals also want to self-insure against the possibility of poor investment returns. Recent equity returns have been at historically high levels. This has both boosted superannuation balances of retirees above what they reasonably expected they would be, while at the same time heightening concerns about the next part of the financial cycle involving lower returns.

Going forward the availability of financial products which give retirees the ability to be more confident that they will not outlive their retirement savings will help boost spending in retirement. However, “underspending” might be more a consumer behaviour issue than a product problem.

Generally available good financial advice along with easy to use calculators might help retirees better work out what they can safely spend in retirement, which in many cases may be more than they spend now.

Attitudes to passing on an inheritance might be a bit more difficult to change. Having kids may not make sense financially but many people do become parents, often assisting their children during their lifetime and providing a bequest in their will. That said, spending your children’s inheritance now is not without its attractions, but cultural and family norms may need to change for this to happen more.