How to retire with greater confidence

For some Australians, retirement is everything they were promised. Indeed, those retiring today may be healthier than any comparable generation in history. Social researcher Bernard Salt calls ages 65-85, “The Great Contentment”1.

However, retirees and pre-retirees often face a wall of worries. In the earlier decades of our working lives, most Australians are focused on career, family and buying a home.

Put simply, super isn’t a priority. Until it is.

In focus group research conducted for AMP2, many in their 50s and 60s talk about a sudden mad scramble to ‘catch up’ and meet an ill-defined retirement goal. So, let’s look at some of the challenges you might be facing.

Conquering the Fear of Running Out (FORO)

Many Australians worry about running out of money in retirement. After a lifetime of working and receiving a constant stream of income, the prospect of funding an enjoyable retirement from a single, soon-to-dwindle pile of money looms as a mathematical challenge and emotional rollercoaster.

This fear of running out is heightened when the growing cost of living eats away at your lifetime savings. AMP’s General Manager, Retirement Solutions Ben Hillier says, “Close to 50% of Australians are concerned they don’t have enough money for retirement – it’s the most common fear experienced by retirees3.”

The international retirement income specialist Don Ezra points to two sources of worry when providing for life after full-time work: “One is that you don’t know how long you’ll live. The other is that you don’t know how large a return your financial capital will earn.”

Complexity and variables

In Australia, we may have the most complex retirement system in the world4 and this complexity seemingly increases with every election cycle. In addition to regulatory, longevity and return risk, retirees need to manage a complex tax code and a curvy Social Security system.

Also, everyone has a unique set of variables that impact their situation. Some retirees are ushered into retirement by illness or injury. Others have retirement strategies complicated by divorce and re-partnering. Or perhaps a couple retires at different ages and access the age pension at separate times.

And, of course, the duration of retirement is itself an unknown.

Too much banking on mum and dad?

For many retirees in property-obsessed Australia, decisions about the right level of retirement spending are complicated by the desire to leave a home (or at least a deposit) to their children.

This can complicate the work of financial advisers, and the nation’s policy makers often question why savings are used to benefit the next generation, rather than underpin retirement lifestyles.

Trouble at home

Reverse mortgage schemes like the Government’s Home Equity Access Scheme are gaining popularity and provide a significant increase on age pension income. Yet many retirees will remain ‘asset rich and cash poor’ until they can monetise the capital sunk into their home without the risk, costs and potential bequest-reduction inherent in a debt-driven home-equity solution.

Price pressures

The sudden re-emergence of inflation is exacerbating the challenges listed above. In AMP’s 2022 Financial Wellness report5 nearly half of those aged 50–59 were ‘extremely concerned’ about the rising cost of living.

“Inflation is a much bigger issue for retirees,” says AMP’s Ben Hillier. “While you’re working, your wages, your super contributions, your investment income, typically rise with inflation. In retirement, that protection is lost and because inflation compounds over time it represents a real threat to your lifestyle.”

This threat was made clear with the recent increase in the amount needed to enjoy ASFA’s ‘comfortable retirement standard’. In the March quarter of 2023, it hit a record high of $70,482 per year for couples. That’s up 7.7% for the year6.

Finding a solution

It’s up to financial institutions, advisers and policymakers to help pre-retirees, retirees and their families manage these challenges.

Ultimately, we need to help you build a large enough nest egg so you can balance your retirement lifestyles with any sense of obligation to your family. After all, retirement should mean giving up work, not giving up your lifestyle.

This goal takes education, strategic advice and clear communication. It also takes innovative retirement income products. We’re here to help.

Current as at Jan 2024
2 What wealthy means to Australians in 2023, AMP
Helping Australians overcome the pervasive fear impacting their quality of life in retirement, Ben Hillier, May 2022
Good Practice Principles: Superannuation and retirement models, Jim Hennington, Actuaries Digital, April 2022
Generation stressed: Retirement concerns and how to alleviate them. AMP, October 2022
ASFA: Inflation drives the cost of retirement to a record high, ASFA Media Release, 26 May 2023

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