Are you ready for retirement? Are you confident your money will last?
Over the past 18 years, retirement website YourLifeChoices has surveyed its membership (currently 250,000) on all aspects of retirement and retirement affordability. Many things have changed in that time, but the one constant is the fear of running out of money.
According to YourLifeChoices’ recent Retirement Income and Financial Literacy Survey, which garnered more than 5000 responses, 48 per cent of respondents were concerned that their savings would not last in retirement. Add in the indisputable evidence that we are living longer, and that fear is magnified.
When we asked our members about the single greatest challenge to living within their current income, 35 per cent cited the costs of health insurance and healthcare. And the latest cost of living increases in the June quarter showed no respite, with health costs up 1.9 per cent compared with the March quarter and 3.4 per cent compared with the June quarter in 2017.
A Monash University-CSIRO report in 2016 estimates that as a result of an ageing population, health expenditure per person will rise from $7439 in 2015 to $9594 in 2035 – an increase in total expenditure from $166 billion to $320 billion or an average annual growth of 3.33 per cent.
Personal health costs are an issue for many retirees. In the financial literacy survey, 71 per cent of respondents said they had private health insurance. However, the increasing cost of private cover means that some are struggling to maintain their policies.
While health costs are the major concern for our members, they are closely followed by housing costs, with 28 per cent citing this retirement expense as one of their greatest challenges.
The ongoing debate about lifting the superannuation preservation age is also a major concern for those approaching retirement.
Currently, Australians who are retired are able to access their super as early as 55 for anyone born before 1 July 1960, progressively extending to 60 for those born on or after 1 July 1964. There are, however, moves afoot to increase the preservation age in an attempt to keep people in the workforce for longer.
Lack of action could be one of the biggest mistakes older Australians make when they start planning their transition from full-time work.
For the 52 per cent of survey respondents who said they were either confident or very confident about their long-term future finances, could that belief work against them?
Could self-confidence – and perhaps a distrust of the financial services sector, given the events that prompted the banking royal commission and the subsequent revelations – mean that they are missing out on maximising their income and savings? Could it sometimes be a case of not knowing what you don’t know?
The Australian Securities and Investment Commission (ASIC) says: “Advisers mostly add value by helping you sort out your financial goals and working with you to develop a plan to achieve them over time.
“Most importantly, working with an adviser will help you turn thought into action, especially if you tend to put things off.”
Joe Stephan, director at Stephan Independent Advisory, saysthatclients often remark they are not aware that certain strategies exist.
He said financial planners regularly reviewed plans to adjust the impact that outside forces (legislative and market changes) could have on them.
“If you choose to manage your own affairs,” he says, “how much time will you spend reviewing all aspects of your strategies? How accurate, non-conflicted or detailed would your reviews be? How effective and confident will you really be with your own review?”
While the previously cited survey shows that most of our members wished they had saved more, many feel that the ability to fund themselves in retirement was denied to them by external factors over which they had no control: health, fragmented work history, lack of income due to caring for others, work in low-paid industries and other such factors associated with life-course disadvantage.
Those close to retirement can still improve their financial situation and maximise their super benefits by:
- increasing the amount they contribute
- consolidating their super if in more than one fund
- reviewing the options/ways in which their super is invested.
Pre-retirees can also consider investment options outside super to assess whether they are in the most tax-effective environment.
YourLifeChoices’ estimates of annual expenditure after the June quarter cost-of-living increases are $74,813 for Affluent Couples (privately funded retirees who own their home). To achieve this level of income – on current cash rates of 2.5 per cent (i.e. not from investment in the sharemarket or property) – they would need almost $3 million in savings.
This article originally appeared in Cuffelinks.
Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.