The Dangerous Assumption Destroying Retirement Plans: Why ASIC's 1.2% Wage Growth Guidance Could Leave You Short

I recall over a couple of years ago I found that there was an implicit assumption of a 1.5% wages growth built into calculators at the time, which I thought was high. Some time later ASIC reduced this to 1.2%. This hidden assumption could cost Australian couples over $250,000 in retirement income.

Financial planners use it. Super funds build their calculators around it. Government regulators have endorsed it. And it's almost certainly wrong.

The wage growth input most calculators hide from you, set to the realistic 0.3% default

ASIC tells financial planners to assume your wages will grow at 1.2% per year above inflation. Sounds modest enough, right? Reasonable even. But here's the thing � over the last 20 years, actual real wage growth in Australia has averaged just 0.3% to 0.4%, which is what I found when I researched it at the time. Over the last decade, it's been negative. The gap between what ASIC assumes and what actually happens is enormous.

$257,520

Potential retirement income shortfall from this single assumption

What is Real Wage Growth and Why Does It Matter?

Real wage growth is what's left after you strip out inflation. It tells you whether your purchasing power is actually improving or not. Say your wages go up 3.5% but inflation is 3%, then your real wage growth is just 0.5%. If wages grow 2.5% and inflation is 3%, you're actually going backwards. Your pay packet gets bigger, but it buys less.

This matters for retirement planning because super contributions are tied directly to your salary. The Superannuation Guarantee is 12% of whatever you earn. When your wages go up, more money flows into super. When they don't, less does. Every super fund projection assumes your income will keep rising over time, generating bigger and bigger contributions. But if you get that assumption wrong by 0.9% per year � which is exactly what ASIC's guidance does, then the error compounds over a 30-year career into a massive shortfall.

Double Impact: The Age Pension is also indexed to wages through Male Total Average Weekly Earnings (MTAWE). If wages grow slower than assumed, your future Age Pension will be smaller than projected. This creates a double whammy: less super AND less pension growth during retirement.

ASIC's Guidance vs Reality

ASIC Regulatory Guide 274 tells financial planners to use 1.2% per annum real wage growth. That number is everywhere. It is in super fund calculators, financial planning software, most online retirement calculators, and every Statement of Advice you've ever received from a financial adviser.

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.

AS IC assumes 1.2% wage growth. Reality: 0.3% for 20 years. That's $55K less in super at retirement. Model YOUR exact wage growth assumption. Calculate with real wage data →

The Compounding Disaster: A Real Example

Let's walk through a real example, following it from accumulation all the way through to retirement.

Take a couple, call them Sarah and Michael. They're both 37, planning to retire at 67. Sarah earns $60,000, Michael earns $80,000. They've got $100,000 in super between them and they're just making the standard SG contributions, or 12% of salary. They're expecting a 7.5% nominal return with 2.5% inflation.

Phase 1: Accumulation (30 years of working)

Their financial planner runs the numbers using ASIC's 1.2% real wage growth assumption. Over 30 years, their total SG contributions add up to $602,366. Their projected super balance at 67 comes out at $1,454,853 in nominal terms, or $693,590 in today's dollars. The planner tells them they're on track for a comfortable retirement.

Basic Retirement Calculator inputs showing the realistic 0.3% pension growth rate

But when you use the historical reality of 0.3% real wage growth, the picture changes. Their total SG contributions come to $526,550 � that's $75,816 less going into super over their entire careers. Their actual super balance at 67 is $1,338,494 in nominal terms, or $638,117 in today's dollars.

$55,473

Accumulation shortfall in today's purchasing power

Sarah and Michael end up with 8% less super than they were told to expect, and they haven't even started retirement yet.

Phase 2: Retirement (30 years of drawing down)

Now let's see what happens during retirement. They're 67, homeowners with $100,000 in other assessable assets, planning for a 30-year retirement.

If they had the ASIC-projected super of $693,590 and the pension grew at 1.2%, their Maximum Sustainable Income would be $88,665 per year. This is what their financial planner told them to expect.

With ASIC's optimistic assumptions: $693,590 super ? $88,665/year MSI

But if they have the realistic super of $638,117 and the pension grows at 0.3%, their Maximum Sustainable Income is only $80,081 per year.

With realistic assumptions: $638,117 super ? $80,081/year MSI, that's $8,584 less per year

$8,584

Per year income shortfall

$257,520

Over 30 years

The Full Picture

Sarah and Michael's financial planner told them they'd have $693,590 in super and could draw $88,665 per year for 30 years. What is the reality? They have $638,117 in super and can only draw $80,081 per year.

They're not just a little bit short. They're facing nearly a decade's worth of income shortfall over their retirement, all because of one optimistic assumption buried in the projections.

The Double Whammy

The wage growth assumption hits you twice. During accumulation, lower wage growth means lower SG contributions year after year. The contributions you miss in year one don't just cost you that amount, they cost you 30 years of compound growth on top of it.

Then during retirement, slower wage growth means the Age Pension grows more slowly too. Even if you started with the same super balance, a 1.2% pension growth rate gives you $88,665 of income per year while 0.3% gives you only $81,688. That's nearly $7,000 per year less, or $210,000 over 30 years.

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

Why Is ASIC's Guidance So Wrong?

The 1.2% figure made sense back in the 1980s and 1990s, when wages actually did grow at that rate. But that world is gone. Globalisation flooded the market with competition from countries where workers earn a fraction of what Australians do. Technology and automation have been eating away at jobs that used to pay well. The gig economy has turned stable careers into precarious contract work. Unions have lost their clout, so workers have less bargaining power when it comes to pay rises. And high immigration has kept the labour supply high, which naturally puts downward pressure on wages.

These aren't temporary blips. They're fundamental shifts in how the economy works. The old relationship between economic growth and wage growth has broken down, and ASIC's guidance hasn't caught up.

Who Gets Hurt Most?

Young workers in their twenties and thirties face the biggest dollar impact simply because they've got decades for this error to compound. A 0.9% difference per year doesn't sound like much, but over 30 years it adds up to serious money. The good news is they've got time to fix it if they know about it now.

Mid-career workers in their forties and early fifties are in the most dangerous spot. Their super fund statements and financial planner projections that had earlier indicated that they were "on track" when they were actually falling short. They don't have enough time left to easily course correct, and many will discover the shortfall only when they're trying to retire. By then it's too late.

For people in their late fifties and early sixties, the impact is immediate and brutal. They might need to work two or three years longer than they planned. The Age Pension they were counting on in early retirement won't be as generous as their projections suggested. They're stuck between a rock and a hard place.

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.