Australian retirees could increase their projected annual incomes between 3 and 51 per cent by incorporating personal and household data into their retirement income strategies, according to new research.
The Vanguard study found that the more personal and household data that goes into a retirement income strategy, the better the outcomes, highlighting the financial benefits of considering personal information in retirement income planning.
Its findings have implications for retirement advice and found that while individuals have access to the full scope of their personal information, they may lack the financial expertise to optimise their retirement income according to their financial circumstances.
“Professional advisers, however, could significantly increase expected retirement outcomes using a greater extent of additional personal information, given their retirement planning expertise,” the research stated.
The research modelled three retirement income strategies that incorporated different levels of personal and household data, including minimal withdrawal strategy, super fund’s best efforts strategy, and full information strategy.
The data revealed that as the complexity in financial situations increased, the full information strategy increased projected annual retirement incomes by 3 to 51 per cent compared to the minimum withdrawal strategy.
Furthermore, as the complexity in financial situations increased, the super fund’s best efforts strategy increased projected annual retirement incomes by 3 to 34 per cent, compared to the minimum withdrawal strategy.
Rachel White, Vanguard Australia’s head of financial adviser services, said the study underscores the importance of personal information in optimising retirement income strategies.
“Comprehensive personalised advice, which combines financial acumen with a person’s full financial picture, is undoubtedly the gold standard. Unfortunately, the cost of comprehensive personalised advice and a shortage of advisers make it hard for people to access this level of advice,” she said.
“Given Australia’s growing retirement needs, and the potential value advisers can bring to retirement planning, there is a need for settings that encourage a greater supply of advisers in the market.”
However, she continued that not everyone needs that level of advice and the research showed that even the consideration of limited personal information and broad assumptions – as in the case of the hypothetical super fund’s best efforts strategy – can already lead to improved outcomes.
“But the study shows that for people with more complex financial situations, there is a substantial gap in potential retirement outcomes compared to when the full information strategy is used. We think more can be done to close this gap,” she added.
White said Vanguard advocates for policy settings and industry practices that allow accessibility to the broad spectrum of guidance and advice to improve financial and retirement outcomes for Australians – from comprehensive personalised advice, to simple personalised guidance, to general information and education.
“The benefits of a more personalised approach are clear from a financial standpoint, but the emotional and behavioural benefits that come from having a personalised plan, and the confidence that brings, are also important,” she said.
Noting the draft legislation proposed to deliver the next tranche of the federal government’s financial advice reforms, White said the task to bridge the Australia’s advice gap remained urgent.
“With millions of Australians expected to draw down on their super in the coming decade, there’s no time to waste in progressing reforms that uphold critical consumer protections and enable Australians to safely and easily access personalised advice to suit their individual needs,” she said.
