Three in five working Australians are concerned they will outlive their retirement savings. Almost half don’t know how much money they’ll have or need at retirement.
And most believe they’ll have a $200,000 shortfall in retirement savings.
AMP’s latest round of Financial Wellness research provides a sobering insight into the state of mind of millions of Australian workers when it comes to their retirements. Many simply don’t know if they will have enough, fearful they will live longer than their savings.
This fear has a profound knock-on effect to quality of life with millions lacking the confidence to spend their hard-earned nest eggs. Astonishingly, Treasury’s Retirement Income Review showed that a significant portion of the population are passing away with as much as 90% of their superannuation savings untouched.
Solving Australia’s retirement fear requires a collective effort from industry, government, employers and individuals.
Regulatory reform to our superannuation system in recent years has increased the competitiveness of the sector, supporting stronger investment returns and flexibility for how Australians manage and contribute to their super.
However, this focus on the accumulation phase of super, while critically important, has come at the expense of developing solutions which enable Australians to maximise their retirement income. With the Retirement Income Covenant, the Government has given industry the much-needed impetus to do just this, and we should expect a wave of innovation in retirement solutions.
The Government is also on the right path with the Quality of Advice Review. Michelle Levy’s preliminary draft recognises the need to make ‘good’ financial advice more affordable and accessible for all Australians.
While the detail needs to be worked through, Levy sets out a wide-reaching set of recommendations which would help ensure basic, episodic, and more in-depth professional advice are all more readily available.
The transition to retirement is often confronting and overwhelmingly complex, and the support of an adviser can be reassuring and transformative, setting people up to live confidently and comfortably. By simplifying the regulatory process, and maintaining strong governance standards, more and more Australians should be able to benefit from this help in the years ahead.
Employers, working closely with their super provider, are in a position to educate and empower their employees with their financial wellbeing.
Many super funds now offer education services, including intra-fund advice focused specifically on improving retirement outcomes. These services should be front and centre of employee value propositions, including programs and schemes to help those taking time out of the workforce to raise children.
At its core, the fear of running out stems from a basic lack of understanding – a knowledge gap – of our finances and the retirement system.
Finally, it’s up to individuals themselves to take greater ownership of their retirement planning to close this gap. The destabilising effect of COVID-19, combined with recent inflationary pressures, have been catalysts for more Australians to think about their retirement plans. While this increasing intent is pleasing, it needs to turn into self-education and action. There is plenty of information and support available, and it’s never too early, or too late to get started.
With approximately half a million Australians set to transition into retirement over the next five years, it will take a joint effort from government, industry, employers and individuals to ensure they fully enjoy their post working years. Encouragingly, change is afoot.
Scott Hartley is chief executive at AMP Australia.