The Dangerous Assumption Destroying Retirement Plans

But here's what the Australian Bureau of Statistics Wage Price Index actually shows:

Period	Nominal Wage Growth	Inflation (CPI)	Real Wage Growth
2004-2024 (20 years)	3.1%	2.7%	0.4%
2014-2024 (10 years)	2.4%	2.5%	-0.1%
2019-2024 (5 years)	2.8%	3.8%	-1.0%

The gap is staggering. ASIC assumes 1.2%. Reality has been 0.3-0.4% over 20 years, and negative over the last decade. If you're planning your retirement based on ASIC's assumption, you're planning for a world that hasn't existed for two decades.

When you combine both effects, being less super at retirement and slower pension growth during retirement, then the total impact is devastating.

What Should You Actually Assume?

Looking at the last 20 years of actual data, 0.3% real wage growth is the realistic base case. It matches what's actually happened, it's conservative without being pessimistic, and it's what we've set as the default in our calculator. If you're planning your retirement, start there.

But don't just run one scenario. Stress test your plan. Try 1.2% if you want to see the best-case scenario, but don't build your life around it. Try 0.5% for a slightly optimistic view. Use 0.3% as your realistic base case. And run it at 0% too, just to see what happens if wages completely stagnate. If your retirement plan only works at 1.2%, you don't have a plan, you have a hope.

How to Protect Yourself

If you're still in the accumulation phase, one cautious way to think about this is not to rely solely on future salary increases that may or may not eventuate. Some people choose to increase their voluntary contributions earlier in their careers, and to treat projections as potentially optimistic, building in their own buffer. Running numbers using more conservative assumptions, and occasionally comparing those against what actually happens over time, can help highlight whether things are broadly tracking as expected.

If retirement is getting close, re-examining your projections using more conservative wage growth assumptions can give you a clearer picture of the range of possible outcomes. For some people this review leads to decisions like working a little longer, maintaining a larger cash reserve, or being flexible about spending in the early years of retirement. The right combination of adjustments, if any, depends on your circumstances and is something to work through with a licensed adviser.

If you're already retired, it can be useful to periodically revisit the assumptions you�ve been using about Age Pension indexation and living costs. Some retirees choose to build flexibility into their spending and to think in advance about how they might adjust if circumstances change. A licensed adviser can help you consider different scenarios and how they might affect your longer-term position.

Test Your Own Scenario

Our calculator lets you adjust the wage growth assumption and see how that changes an illustrative retirement projection. You can, for example, compare results using a 0.3% real wage growth setting with those using 1.2%, which is the ASIC guidance figure, to understand how sensitive the outputs are to that single input. Many people find it eye-opening to see the size of the gap between more conservative settings and optimistic ones.

The Bottom Line

For a typical couple, this single assumption can mean $55,000 less super at retirement and $8,500 less income per year in the scenarios illustrated here, adding up to over $250,000 less projected retirement income over 30 years. Running your own projections with a range of assumptions (including more conservative ones) can help reveal how robust or fragile a plan might be. The right response to those numbers will differ from person to person and is something to discuss with a licensed adviser rather than relying on any one set of projections.