Saving for retirement starts with the very first superannuation contribution. While this passive accumulation of assets may start young, it’s not until later in life most Australians seriously plan for their post-work years. As retirement approaches 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.
While it’s natural to look back at opportunities missed – why didn’t I save more? why didn’t I start saving earlier? – without the benefit of hindsight (or a handy crystal ball), life often gets in the way of accumulating retirement savings. There’s any number of individual financial hurdles along the way: clearing HECs debts, buying a home, raising a family, funding holidays and celebrations.
There are also the external challenges, those beyond your control. These have been evident in the past couple of years.
- Inflation has returned; it erodes the purchasing power of each dollar and means a dollar saved today may be worth a lot less in the future. Inflation has ushered in a dramatic rise in the cost of living. The need to spend more today means less savings for tomorrow.
- Interest rates have increased significantly, which mean mortgages, car finance and other forms of debt cost more. It can be challenging to find a little extra to put away for retirement when today’s costs continue to rise.
- Market volatility has rattled all sectors across financial markets. While it can be nerve wracking for those accumulating assets for eventual retirement, it can be devastating for those on the cusp of retirement or who are already drawing on their savings.
Then there is the age old challenge, one exacerbated by our increasing longevity. How can you plan for the future when there’s the uncertainty of not knowing for how long you will need a regular income to fund your retirement? What about if you need access to money to replace a car, fix a leaky roof or meet unplanned health or aged care needs?
Australia’s shifting demographics toward an ‘older for longer’ population highlights 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.
Innovative solutions that provide for longevity without sacrificing financial flexibility are needed. Retirement strategies must incorporate a more comprehensive suite of features; these should include guaranteed lifetime income, market-linked returns, downside protection and the ability to make withdrawals.
With certainty of income and access to capital, this phase ensures retirees can savour their retirement years with financial security and peace of mind, so they can flourish in retirement and enjoy this next well-earned phase of life.
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