People approaching retirement do not have a good sense of how much superannuation they need for retirement or how long their money will last. They are not very good at preparing for the risks associated with longevity, ill health or being forced to stop work unexpectedly early.
These are among the findings of a new survey, commissioned by a group of actuary bodies, which argue that more effort needs to go financial literacy programs and retirement planning.
This sort of argument has been made for a long time, without a lot change. Maybe the answer is to require the super funds and wealth management companies that enjoy the benefit of large funds flows courtesy of compulsory super to provide these services to their members and customers free.
Actuaries Institute joined forces the American Academy of Actuaries and the Institute and Faculty of Actuaries in the United Kingdom to commission a survey that would get some insight into people’s preparation for dealing with retirement.
According to the Retirement Readiness report, most respondents say they are planning to retire gradually rather than fully and many are planning not to retire at all. Many are planning to retire at older ages and relatively few are expecting a comfortable lifestyle in retirement.
A third of all respondents do not plan to retire at all. “While some of these respondents may be choosing to continue working as a lifestyle choice, many are likely feeling financial pressure to continue working and do not foresee a time when they will be secure enough to retire,” the report says.
Of those who plan to retire, only 23 per cent of Australians plan to retire fully.
“It would seem that we are immersed in an era of diminished expectations brought on by the shift from defined benefit to defined contribution pension schemes and the impact of asset market declines during the financial crisis. These findings are similar in all three countries surveyed,” the report says.
Forty-two per cent expect to live a flourishing or comfortable lifestyle in retirement. 58 per cent expect to live a poor or modest lifestyle during retirement.
More than 30 per cent of Australians expect to draw retirement income from home equity. This is surprising, given the low take-up of reverse mortgages and other equity release finance products.
The proportion of people planning to retire declines with age. This suggests optimism among the young about their ability to retire, which meets greater realism as retirement approaches.
The dominant plan for a potential drop in the value of retirement assets is a return to work. This may prove unrealistic if age or poor health prevent such a return when needed.
Women are less prepared than men. “The explanation for this is not clear but may be the result of women earning less and having smaller retirement savings. It may reflect a higher degree of pessimism among women or differences in expected standard of living in retirement,” the report says
“The results indicate a need for more education related to financial literacy and retirement planning. The education required should aim to establish a comprehensive understanding of the relationship linking accumulated retirement funds, retire goals and the risks associated with making retirement assets last a lifetime.”