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We need national and personal visions for retirement

These two articles report on different results from the same research.

The first is by Matthew Harrison, the second by Emma Rapaport.

 

The Federal Government’s Retirement Income Review Consultation Paper was released recently. It has been welcomed as a positive step towards enhancing Australia's retirement system given the dramatic economic and social shifts over the past 30 years.

Interplay with perceptions of retirement

There is a definite need for an evaluation of the technical issues that are driving the system and the interplay between them. But we also need to look at the intangible elements that play an important role, in particular Australians’ perception of retirement.

The Consultation Paper acknowledges that research shows Australians do not actively engage with their superannuation or long-term retirement planning. A key reason for this is the complexity of the system.

We believe the issue goes beyond this. Franklin Templeton recently released the findings of a major survey of Australians’ attitudes and behaviours around planning for and living in retirement. This global survey was conducted in Australia for the first time with over 2,000 Australians aged 18 or older.

The survey revealed that retirement savings is increasingly becoming a driver of anxiety and distress for Australians, despite our world-class compulsory superannuation system. Australians are also largely attempting to navigate the complexities of retirement finance themselves rather than seek professional advice.

Overall more Australians reported experiencing stress or anxiety (70%) related to retirement savings than those surveyed in the US (67%), Canada (68%), and China (68%) [although only pre-retirees were surveyed in the 2019 China survey, and retirees were excluded]. Younger Australians (those under 40) are generally anxious about retirement savings even though they have the benefit of time to plan, save and invest accordingly.

Lack of choice to work longer

Potentially driving some of this distress is the fact that at least one third of respondents to the survey across each age group reported having less than $50,000 in total savings for retirement. More people are worried about running out of money in retirement than potential health issues.

Most people plan to work longer. As well as potentially denying themselves the freedom to pursue personal interests, the ability to ‘extend’ a working life to compensate for a lack of retirement savings is far from guaranteed. Indeeed, 31% of retirees said they were forced to retire due to circumstances beyond their control and 47% said this occurred earlier than expected.

Calls to enable older Australians to work longer may unintentionally fuel this idea. It could further undermine the idea of retirement as a stage of life that should be actively planned for. Of those surveyed, 62% do not have a strategy to generate income for retirement that could last 30 years or more. This figure is not in step with longevity predictions or anticipated rises in expenses.

A total of 51% of respondents said they are concerned about outliving their assets, and 53% have no idea how they will pay for medical expenses in retirement.

An inability to perceive retirement goals

People save when they have clear goals – like buying a house or taking an overseas holiday - because they can envisage a positive pay off. This motivates them. Right now, many Australians are not approaching retirement with clear goals and a positive vision, and this means they are either not doing enough to build their retirement finance, or worse, doing nothing at all.  

This problem is also not helped by the vastly different projections about the amount of money a person will need in retirement.

Many Australians will spend a third of their life in retirement. There is strong potential for Australians to have a financially secure retirement, but sadly, only 5% said they would use the word 'energised' to describe how they feel about life in retirement. It’s time we encourage people to be more excited about what this time of life could mean for them should they be willing to actively plan and work towards it.

Matthew Harrison is Managing Director at Franklin Templeton Australia.

 

Aussies shun advice in retirement

Australian retirees are turning away from financial advice and are even reluctant to include their own life partners in the retirement planning process, a global study shows.

Less than a quarter of Australian retirees seek financial advice, instead choosing to navigate their retirement finances alone, according to new research from global asset manager Franklin Templeton.

Only 24% of Australian retirees use a financial adviser, compared with 57% and 47% of this cohort who seek financial advice in Canada and the US.

But it's not just financial professionals that are being left out of Australians' retirement planning. More than 54% of respondents aren't coordinating their retirement planning with a spouse or partner—also the lowest among the three nations surveyed.

The results follow a series of scandals in the financial advice industry, which unearthed widespread misconduct and an erosion of trust in financial planners.

In the wake of this, some have warned the cost of advice could increase dramatically as the advice industry fractures and financial planners exit.

The latest Vanguard/Investment Trends SMSF report 2019 showed that overall satisfaction among trustees with financial planners has declined to a seven-year low. Primary reasons cited include a perceived lack of value-for-money and high fees.

"A lack of confidence in the expertise of advisers is now the number one barrier for SMSFs seeking advice on their unmet needs sitting at 32%, with adviser fees the second biggest barrier at 30%," Vanguard says.

Negative perceptions of advisers are also reflected in Morningstar Australia audience surveys. Some 18% of individuals surveyed shun financial advisers because they don't trust them, the Morningstar and Investment Trends 2018 Investment Product and Advice Needs Survey found.

A similar proportion of respondents stopped using advisers because of poor outcomes, and 20% said they simply have no need for them.

Manuel Damianakis, Head of Retail at Franklin Templeton Australia, says that while everyone should be encouraged to take a strong personal interest in their retirement finance, the 'flying solo' approach comes at a cost, particularly in this low rate environment.

“81% of those retired have never developed a written retirement income plan and only 43% told us they have a strategy to generate income for retirement that could last 30 years or more. Given ongoing market volatility and protracted low interest rates, it would be unwise for retirees to adopt a set and forget approach to their savings and investments and this is often where those working without professional advice become unstuck."

Australian investors are struggling to manage their investments. One-in-five SMSFs trustees considered ditching their fund in favour of an employer superannuation fund last year, on the back of high costs and complexity.

Diversification also remains an area of concern for SMSFs, with just over 10% of their total portfolio to international assets. The number is much lower among those who don't use advisers—14% in 2019 who use advisers, 9% who don't.

SMSFs with no exposure to overseas assets are less likely to appreciate the importance of a diversified portfolio, emphasising their need for greater guidance on what to invest in and how, the report said.

 

Emma Rapaport is Editor at Morningstar.com.au. This article is general information and does not consider the circumstances of any investor.

 


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7 Comments
René
December 10, 2019

Not forgetting the non-financial aspects of retirement e.g. what will you do for the next 30 years? Studies have shown that depression is common among retirees, when the shine of their new found freedom has worn off, and there’s a gap in finding daily fulfilment. A work colleague asked me how I thought I would find retirement. I said I expected it'd be as easy as falling off a log. About 15 months after retiring I became clinically depressed. I'm OK now but, at least in my case, it pointed to the importance of planning for those other aspects of retirement.

Warren Bird
December 11, 2019

Agree.

Former investment consultant, fund manager and fund CIO Jon Glass set up his venture, 64 Plus, to provide coaching and assistance in planning for retirement beyond the financial plan.
Some readers might be interested in such a service: https://www.64plus.com.au/

Nettie
December 07, 2019

We have an SMSF and have been running it for about 12 years....Almost all has been in ASX shares. We have double our original investment while taking out the minimum for our "pension". I also have an industry Superfund...I have been withdrawing the minimum "pension" for the same amount of time...This has gone up by 10% In the same timeframe...I did this just to see how things would pan out. .....by far our own SMSF has blitzed it.....no financial advisors anywhere in sight for our own fund.....we have now gone into cash for almost the amount we first had in our self managed fund...the rest left in the market for both value and growth.
We both enjoy our "hobby"... Keeps the brains ticking....
Have thought of transferring my industry fund....but....a couple of eggs in the basket might be valuable.
We live a very comfortable lifestyles and although now in our 70s look fwd to our long and happy retirement....without financial advisors.

AlanB
December 11, 2019

Nettie - same experience, same result, same conclusions and same intentions.

Joey
December 05, 2019

This is an amazing statistic. "Only 24% of Australian retirees use a financial adviser,". This is not the general population, it's retirees. They need to understand superannuation, social security, aged care ... so many opportunities to improve their outcomes if they see an adviser.

Albert
December 05, 2019

most do not have enough money to bother. just enough to pay for essential living costs

John
December 05, 2019

After initial consultations with several financial advisors & fund managers (aligned and independent, before and after retirement), but never tempted to pay $3k+ for their Statement of Advice or 2% ongoing FUM fees, the reasons are simple... None seemed to have ideas/insight that sparked my interest in taking things forward and none would put skin in the game. After a well known "award winning advisor" with his own TV show was struck off for self-serving dodgy behaviour recently, you wonder how the average punter is supposed to know who to trust? Better to maintain intellectual capacity through continuing personal education and research, while accepting self-direction means sub-optimal returns & losses sometimes. But I will have a 2% buffer by avoiding management fees.

 

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