COVID-19 ushers in new period of retirement income uncertainty

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A recent survey of more than 3000 YourLifeChoices members shows that falling equity markets have triggered a rethink about retirement savings.

Based on the first five months of the year, 2020 will be unlike any other. While the immediate impacts of the coronavirus pandemic have been felt by many, the secondary effects of falling world share markets and financial uncertainty have weighed on the minds of respondents to this year’s survey.

The April 2020 Ensuring Financial Security in Retirement survey provides a unique insight into the thoughts, concerns and hopes of retirees across Australia. The resilience of retirees is evident, and it’s encouraging to see they are still feeling confident about their futures, albeit cautiously.

The survey focused on three key areas: the impact of share market falls on savings, where financial advice is sought (and most valued) and, finally, whether retirees have fallen into any common income planning traps, such as over-confidence or aversion to loss.

Key findings
The No.1 financial concern for retirees now is losing their savings as share markets fall
According to the survey, shares were again the best performing investment asset. However, an increasing number of respondents also nominated equities as their worst performer, highlighting fears that investing in shares alone won’t always be enough to fund retirement.

85 per cent of retirees receiving advice from a financial adviser have been happy or very happy with the advice
People value a good financial adviser, and those who use one understand the importance of financial advice. However, almost half of those surveyed did not receive financial advice and were also less likely to value advice from their super fund.

More than 40 per cent of people incorrectly believe that super offers guaranteed income for life
Many believe that superannuation can provide guaranteed income for life, indicating that many don’t understand how super works in retirement. While super is designed to pay income for life, it is highly dependent on markets and drawdown amounts. Only lifetime annuities and the Age Pension can offer a retiree guaranteed income for life.

People are worried about the impact of markets on their savings (after the event)
The market volatility of early 2020 has reminded people that investing is not always a one-way bet. In the April 2020 survey, for the first time, the top fear among retirees was losing their retirement savings because of a fall in the market. It was the top-rated concern across all respondents and a total of 41 per cent said it was one of their top three financial concerns for retirement. Comparatively, in May 2019, market falls was the fifth most common concern.

Figure 1 details the changes in retiree concerns between 2019 and 2020. Worries about paying for long-term care remained relatively high, but the previous concerns over sustaining a comfortable retirement have declined. Broader concerns around living standards have all fallen, possibly as a result of the impact of self-isolation or because people are more worried about the falling market.

Living standards under the lockdown might be challenging retirees’ definition of ‘comfortable’ as they adjust to a ‘new normal’ that likely involves fewer social engagements, recreational activities and holidays.

The sharp increase in concerns over share market losses is reflective of the popularity of shares as an investment and source of retirement income. Share ownership increases with wealth, and a majority of the people who responded, and have more than $300,000 in total savings, reported holding shares. More people have cash accounts, but otherwise shares are the most popular investment.

The popularity of shares was also reflected in a question on the best-performing investment, which is shown in figure 2.

Shares were considered the best-performing asset, just edging out cash accounts, even despite the recent volatility. The responses also highlighted investors’ passion for property. While a smaller proportion (19 per cent) of investors hold investment properties, in part due to the amount of money needed to buy an investment property, they viewed the performance favourably.

Almost three-quarters (14 per cent of the total) of investment property holders rated this as their best-performing investment, compared to 55 per cent (22 per cent of the 40 per cent) of share investors. Maybe that’s why you hear more about property around the barbecue. You don’t usually hear people talk about life insurance options. Only a minority of the small number of life insurance investors rated it as a high-performing investment.

Loss aversion
One of the most intriguing issues of financial behaviour is the impact of loss aversion. The research shows that people dislike a loss more than twice as much as they like an equivalent gain. This aversion was evident in the way people reacted to recent share market volatility.

People concerned about the impact of share market falls, or not earning enough income, were also the happiest with the amount of income they have for retirement. Presumably, this was before the fall in markets, which has made them concerned that their income might not last.

Concerns over market volatility were also related to wealth. People with more savings tend to have more income for retirement and a greater chance of being happy with that income. Loss aversion is highlighted in the fear of losing some of that wealth or income. This has been an issue for self-funded retirees, as the impacts of the COVID-19 pandemic include dividend cuts and low interest rates impacting their income in retirement.

At the other end of the spectrum, concerns about having money for an emergency fell as wealth increased. This concern was greatest for those with more limited wealth.

Retirees who are just getting by are more worried about being able to deal with the unexpected expenses that occur through retirement.

For the full report, and for information about setting up guaranteed income for life to help cover your living costs, visit or speak to your financial adviser about Challenger lifetime annuities.

Methodology: The Financial Security in Retirement survey was conducted by YourLifeChoices in partnership with Challenger Limited in April 2020. The survey was conducted using SurveyMonkey and sent to YourLifeChoices’ database of 230,000 Australian members aged 50-75 years. The survey received 3007 responses to 41 quantitative and qualitative questions.

Has anything changed for you since we conducted this survey? Have your concerns eased or worsened? Have you had to reappraise your spending?

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Analyst Russell Markham tells how he weathers the storm when the economy tumbles.

Written by Challenger Group


Total Comments: 12
  1. 0

    I’m still happy with my decision to cut my allocated pension payment in half for this financial year. Adjustments to my pension segments have meant the principal, although not quite up to pre-COVID balance, has risen satisfactorily.

  2. 0

    I note the article is written by the Challenger annuity group. I looked into annuities and the interest rates are really terrible. I’ll take my chances with my super fund. Also, I wish they’d find a picture that doesn’t have a good looking older couple looking worriedly at bits of paper for a change!

    • 0

      Request noted flowerpot! We do our best but …

    • 0

      can you imagine the outcry if the title image showed a disfigured couple smiling at their bits of paper? There is already enough combat between left and right, extremists and centrists, pensioners and SFRs, those who are comfortable and those who are struggling (which is not always the pensioner).

  3. 0

    Lifetime annuities are not guaranteed for life as stated . If the provider goes belly up ,who is going to pay your annuity , there is far less chance of your super fund going broke than any of the companies offering annuities. People should have more faith in the income streams / pensions provided by super funds than profit oriented annuity companies working for their shareholders.

  4. 0

    Nice bit of content advertising, worthy of Channel 9.

  5. 0

    The first finding is false as there are no losses from being invested in the share market unless the holder decides to sell at a loss! Otherwise, all we have is a reduction in value. Our SMSF fell in value by 22% but I’m sure it will recover.

    • 0

      or the investments are security for something else like a margin loan. Don’t need to sell to have to find some more cash to cover the loss.

    • 0

      Yes skinner, my super also fell by about the same amount but has recovered well above the loss already.

      Now would be a good time to increase holdings and wait for the inevitable rebound in a few months time (after the inevitability of a period of volitility due to the USA election at the end of this year and into next).

    • 0

      My wife’s small super balance, less than $200k, has in the last 12 months since August 2019 increased by nearly 5%. Far better than she could get in a bank. Unfortunately since 1 January 2020 it has fallen by 0.9% (at one point it was down 11%) but it is gradually getting back to parity and beyond. We are comfortable with the performance of her super fund. We choose not to draw her super down as we can live comfortably on my super so we keep hers as a nest egg for if/when I die before her.

  6. 0

    Best investment is your own home (at the moment still). You can always sell that when older and rent something cheaper and have more spending money. I do not need to leave things to next of kin as they are all well off. All this worrying about investments at my age would possibly rob me of my sleep.



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