As Australians face retirement, there’s a mix of excitement and fear; the opportunity to realise dreams overlaid with the very real concern that retirement savings simply won’t last the distance. How can individuals plan for the future when there’s the uncertainty of not knowing for how long they will need a regular income to fund their lifestyle? What about if they need access to money to meet unplanned health or aged care needs, or fund other ‘lumpy’ expenses?

While a ‘set and forget’ approach to retirement planning may have been all that was needed to enjoy a comfortable lifestyle in years gone by, as Bob Dylan so notably warbled, times are changing. Australia’s population is ageing, the cost of living is rising, and market volatility remains an ever-present challenge.

Fear and uncertainty are steadily invading the retirement years.

An intergenerational shift…
Australia’s retirees now live longer, healthier lives and will be able to enjoy a more active lifestyle than their parents and grandparents. This was a central theme of the Intergenerational Report 2023, which examines the powerful forces that will shape Australia’s economy over the coming decades.
Our population will continue to age over the next 40 years; the number of people aged 65 and over will more than double and the number aged 85 and over will more than triple [1]. Not only is longevity increasing, older Australians will experience more years in full health and more time using government-funded services [2].
Rather than celebrating the extra years of life, policy makers and retirees are fearful – the ageing population will be an ongoing economic and fiscal challenge. How will these extra years of life be funded?
…and a shifting retirement landscape

Today’s retirement landscape is different to that experienced a generation or so ago and it will continue to shift and evolve as Australia’s retiree population increases. Retirees of the future will have had more time to accrue superannuation savings and benefit from the power of compounding returns. The annual value of transition to retirement savings is projected to increase from $55 billion in 2022 to over $206 billion in 2041 [3].

While that may seem a big number, Treasury projections indicate the median super balance at retirement will grow to $460,000 by 2060-61 as the system matures [4]. While this a is positive improvement on today’s average balance, is it enough to fund 25-30 years post-retirement?

Fear and uncertainty
Despite the increasing size of super retirement balances, research consistently shows that money worries are a leading cause of anxiety for older Australians [5]. Retirees typically possess a cautious mindset and a desire to maintain financial security throughout retirement. This sometimes comes at the expense of a ‘comfortable lifestyle’ – after all, who knows how long the money needs to last?

Retirement strategies
These shifting demographics highlight the importance of retirement strategies that provide income certainty and the opportunity to access capital. However, many of the available retirement strategies are perceived as rigid and difficult to execute, often pushing retirees to adopt sub-optimal self-insurance actions such as budgeting and lifestyle limitations to eke out their savings.

Retirees need more innovative solutions that provide for longevity without sacrificing financial flexibility. Retirement strategies need to incorporate a more comprehensive suite of features including guaranteed lifetime income, market-linked returns, downside protection and the ability to make withdrawals. Only then can older Australians look forward with confidence and live the retirement lifestyle they’d planned.

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    1. Australian Treasury, Intergenerational Report 2023, August 2023

    2. Australian Treasury, Intergenerational Report 2023, August 2023

    3. Deloitte Actuaries & Consultants –Superannuation Market Projections Report 2021 (today’s dollars)

    4. Australian Treasury, Intergenerational Report 2021, June 2021

    5. R Dinham, ‘A close look at retiree fears and expectations’, Firstlinks, 3 February 2021

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