What we wish we knew about retirement

How much money should we have? How long will we live? How much can we spend?

Retirement is nothing if not tricky in many areas, but especially in the spending category. In this edition of the Retirement Affordability Index, we go searching for answers. The aim is to build confidence. But for most retirees and those approaching retirement, confidence will come only with a strong individual belief that we know what we’re doing.

Pension experts from around the world recently gathered to critique Australia’s retirement income system and concluded that “people are utterly lost going into retirement”.

The International Centre for Pension Management, a research-based organisation with 42 global partners, says that Australia needs to realise its pension system is a giant complex bank account that is leaving its investors – Australia’s retirees and workers – confused and disempowered.

“This is our main message. Pretending people can choose in such a complex situation is fake, even misleading,” says economic psychologist and group chair Andre Snellen.

“It’s not the technicalities that are the problem. It’s wrapping your head around going from accumulation to decumulation, from a returns-based system to a replacement rate, from savings to an income stream.”

The Actuaries Institute says that Australians are severely underestimating how much money they’ll need for how long they will live and that all longevity tables must be reviewed.

Institute research found that new retirees should be basing their sums on living to 100 rather than using current life expectancy tables that say women, on average, will live to 87.

“A healthy, well-educated female entering retirement today, who had an affluent career and enjoys a good quality of housing, is just as likely to live beyond age 100 as she is to die before age 80,” the institute says.

“The tables have a material impact on the way retirement income strategies and products are evaluated, and currently underestimate longevity.”

The institute claims that a couple – a male aged 65 and a female aged 62 – would need a plan that lasts until the male is 100, so that they can be 80 per cent sure their financial plan meets their potential lifespan.

Actuary Jim Hennington, author of the research note and a member of the Actuaries Institute retirement incomes working group, says: “Everyone wants to make sure their savings last.

“Fifty per cent of us live longer than our life expectancy. Some live all the way to age 105 and beyond.”

Going it alone
Meanwhile, a majority of retired Australians are independently managing their retirement finances and many are not even involving their partners, according to global asset management firm Franklin Templeton.

The research shows that while nearly half of Australian retirees believe a financial adviser is important to their retirement planning and in generating income in retirement, only 24 per cent are working with an adviser. And trust remains an issue in the wake of the damning findings of the financial services royal commission.

This ‘flying solo’ approach could come at a cost, said Franklin Templeton’s head of retail in Australia, Manuel Damianakis.

“Eighty-one per cent of those retired have never developed a written retirement income plan and only 43 per cent told us they have a strategy to generate income for retirement that could last 30 years or more,” he said.

But YourLifeChoices is here to help with a series of articles for our December edition of the Retirement Affordability Index™ titled, ‘A balancing act’.

What have been your experiences of spending in retirement? Are you concerned you will outlive your savings?

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Related articles:
Retirees ‘flying solo’ with finances
Desperate to retire
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Written by Janelle Ward


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