Australians' dangerous delay in retirement planning
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A new study assessing the retirement readiness of Australians shows a worrying lack of planning and an over-reliance on products, at the expense of expert advice.
In a survey of just under 7,000 people, 44 per cent of respondents indicated they feel prepared for retirement, with this figure down from 49 per cent in 2015.
Perhaps more alarmingly, 51 per cent of those already retired expect to outlive their retirement savings, up significantly from 33 per cent in 2013.
Widespread changes to superannuation legislation in recent federal government budgets, and ongoing suggestions of further changes, are feeding this uncertainty.
"Australians' confidence about their retirement has deteriorated significantly over the past few years," says King Loong Choi, senior analyst, Investment Trends.
"The ability to accumulate sufficient wealth, potential falls in the share market, and regulatory changes to the superannuation rules are all contributing to Australians' growing angst about their retirement future."
Around half of the respondents who are currently working said they would need at least $3,000 per month to have a comfortable lifestyle--yet only one in three currently feel they would be able to achieve this.
Two-thirds of these working Australians believe they need financial advice to help them reach their retirement goals.
"Super funds and financial planners are best placed to inform, educate and advise Australians on their retirement finances," says Choi.
He believes advice and education on the various retirement product options available to Australians is critical to help ensure assets are allocated wisely when they move into retirement.
The Investment Trends study found that retirees who consulted a financial planner allocated nearly twice as much of their savings to retirement income products, relative to those who did not seek professional advice.
"With all of the changes occurring to superannuation this year, it’s a great time to seek financial advice to ensure your retirement savings are optimally structured and minimise any adverse effects from the changes.
"We’ve seen a number of retirement income products come to market in recent years, but setting an appropriate structure and strategy in place are key before considering any individual product," says Tim Murphy, director of manager research, Morningstar.
Those without advice, in the meantime, spent an average of four times more of their retirement "nest egg" on lifestyle expenditure such as renovations, holidays and new vehicles.
The industry is expected to respond to this demand by introducing several new retirement income products in the months and years ahead.
Morningstar is also representing the interests of its clients, including end investors, by engaging with the federal government on its framework for Comprehensive Income Products for Retirement (CIPR).
A government review is currently underway, following on from David Murray's Financial System Inquiry of 2014, which identified the need for more product solutions in this area.
"Although there has been significant focus on reform to the accumulation phase of superannuation over the past two decades, the Murray Inquiry concluded that the retirement phase of Australia's superannuation system was underdeveloped and could better meet both the risk management needs of many retirees and the objective of the superannuation system," says Kelly O'Dwyer, Minister for Revenue and Financial Services.
She alludes to the 2015 Intergenerational Report, which showed that by 2055, the number of Australians aged 65 years and over will be more than double the current rate.
"The potential gains to retirees, the economy and taxpayers from the introduction of CIPRs and a more efficient retirement phase are significant," O'Dwyer says.
"The Turnbull government recognises that policy changes must significantly improve outcomes for retirees and increase the range of retirement income products available. However, this should not be at the expense of retirees' freedom to choose how to support themselves."
For retirees, the Murray Inquiry noted that incomes from CIPRs could be 15 to 30 per cent higher than those from the current typical strategy of drawing the minimum amount from an account-based pension while providing security of income for life.
With submissions to the latest review closing at the end of April, the government is proposing the rollout of a MyRetirement framework as a way of increasing individuals' standard of living in retirement and increasing the efficiency of the super system.
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Glenn Freeman is Morningstar's senior editor.
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