By Ben Hocking, on behalf of Cuffelinks
September 2018

Are you ready for retirement? Are you confident your money will last?

Over the past 18 years, retirement website YourLifeChoices has surveyed its membership 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.

The uppermost concerns of retirees

According to YourLifeChoices’ recent Retirement Income and Financial Literacy Survey, which garnered more than 5,000 responses, 48% of respondents were concerned that their savings will 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% cited the costs of health insurance and healthcare. And the latest cost-of-living increases in the June 2018 quarter showed no respite, with health costs up 1.9% compared to the March quarter and 3.4% compared to the June quarter in 2017.

A Monash University-CSIRO report in 2016 estimated that as a result of an ageing population, health expenditure per person will rise from $7,439 in 2015 to $9,594 in 2035, an increase in total expenditure from $166 billion to $320 billion or an average annual growth of 3.33%.

Personal health costs are an issue for many retirees. In the financial literacy survey, 71% of respondents said they had private health insurance. However, the increasing cost of private cover means that some are struggling to maintain their policies. Health costs are closely followed by housing costs, with 28% 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.

DIY or trust an adviser?

Currently, Australians are able to access their super as early as 55 (subject to certain conditions of release) 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, as 52% of survey respondents said they were either confident or very confident about their long-term future finances. Could self-confidence – and perhaps a distrust of the financial services sector given the events that prompted the Financial Services Royal Commission and the subsequent revelations – mean that they are missing out on maximising 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, says that clients often remark they are not aware 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. He says:

“If you choose to manage your own affairs, 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?”

The nest egg we need

While our survey also 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 disadvantages. YourLifeChoices’ estimates of annual expenditure after the June 2018 quarter cost-of-living increases are $74,813 for ‘affluent couples’ (privately funded retirees who own their home). Depending on the assumed investment earnings, a significant seven-figure amount is required in savings to produce this amount of income. For example, $1.5 million earning 5% is needed to produce $75,000 a year, which requires some risk-taking in shares or property as bank deposit rates are only 2.5%.

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 and 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.