Retiring an outdated concept of retirement

5 February 2024
| By Jasmine Siljic |
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Industry professionals are calling for Australia’s traditional concept of retirement to be redefined, prompting financial advisers to consider how they can prepare and support the retirement needs of their clients. 

Data from the Australian Bureau of Statistics (ABS) released in December stated that life expectancies at birth are 81.2 years for men and 85.3 years for women, up from 74.5 years for men and 80.4 years for women in 1992.

By 206263, the Intergenerational Report forecasts they could reach 87 years for men and 89.5 years for women. 

Research from MetLife in December discovered that 53 per cent of people in Australia hope to live to 100 years, and 58 per cent globally believe it will be commonplace by 2035.

The impact of this is twofold; meaning, firstly Australians are working longer and retiring later, and secondly that traditional longevity calculators and retirement products may need to be readjusted to meet this lifestyle change.

According to Natixis Investment Managers, Australia ranks seventh in the world on the Global Retirement Index (GRI), sitting alongside nations such as the Netherlands and Germanym but despite consistently making the top 10 for retirement security, commentators argue more still needs to be done to prepare Australians for their retirement.

In December 2023, a dialogue paper titled Retirement Matters by the Actuaries Institute urged for an overhaul of the current retirement framework to better prepare Australians for the future.

“Retirement has evolved significantly, and many people will choose not to follow conventional retirement patterns. The needs of people who have 20 to 30 years of retirement ahead of them are going to be very different to those who in the past had only a decade or so. It’s time to reimagine retirement and get the system up to scratch,” wrote Stephen Huppert, an independent superannuation adviser.

Speaking to Money Management, David Williams, a former financial adviser for over 30 years and chief executive at My Longevity, observed the need to reconceive Australians’ understanding of retirement.

“What we’ve done is we’ve turned retirement into a period of time, rather than an event that needs great consideration. We’re simply not informing people of the basic starting point, which is: How long can I live? Have I chosen to do anything about it? We don’t give them that first piece of information, and that’s a really big social issue,” he said.

Huppert added: “Social, technological, employment and demographic trends are changing the concept of retirement for individuals, employers and governments. The changing nature of retirement brings challenges and opportunities. We need to retire the old concept of retirement and start talking about life after full-time work.

What can advisers do?

With their clients living longer, working longer and seeking a more flexible retirement, the role of advisers in preparing for retirement has taken a different tangent from the past.

The Intergenerational Report found older Australians have seen the largest increases in participation rates over the past 40 years, particularly women in their 50s and early 60s; meaning, advisers need to help clients to make a phased transition out of work rather than a sudden stop.

Roger Perrett, financial adviser at Freshwater Wealth, found that clients who abruptly stop full-time work often struggle with their change of lifestyle and pace in retirement, demonstrating the need to prepare Australians for a shifted sense of identity once retiring.

However, he also noted there are positives in that his clients use their longer life expectancies for their passions, such as travel and spending time with their grandchildren.

“Longer lifespans help with optimism about the future and allows people to do more in retirement.”

Jon Glass, director of retirement coaching business 64PLUS, recently revealed that nearly a quarter (20 per cent) of retirees feel unfulfilled in retirement and struggle to find purpose.

As a result, options such as part-time work and volunteering can offer a renewed sense of purpose and connection in retirement, as well as additional financial support.

Considering such options helps clients build trust with their adviser and make more resilient investment decisions when feeling confident in their future, Williams elaborated.

From a financial perspective, longer lifespans might cause difficulty in estimating how much a client will need in retirement, particularly as people fear running out of money or intend to leave money behind for their heirs.

Research by Fidelity and MYMAVINS found only 14 per cent of people are very confident their retirement savings will be able to support their desired lifestyle.

Huppert said: “Financial advisers should be helping their clients understand the impact of longer lifespans and the difficulty of estimating how long they might live. The longer clients live, the more exposed they are to all the other associated retirement risks, such as investment risk, sequencing risk, inflation risk, expenditure risk and health risk.”

One approach to addressing this uncertainty is utilising a lifespan calculator based on Australian Life Tables, which allow for mortality improvements as well as individual health and lifestyle data.

My Longevity, a personal longevity planning website, was founded by Williams in 2008 to provide a more individualised approach to longevity plans. The algorithm calculates one’s life expectancy based on a variety of factors, including physical environment, health, stress levels, genetic history and eating habits.

“[My Longevity] helps people own that part of that retirement journey, so when it comes to making investment decisions, they have a time frame that’s relevant to them,” Williams said.

He is currently in the process of finalising an updated version for advisers and superannuation funds to implement for their clients and members.

Government action 

The concerns are shared by the federal government, and there has been no shortage of government action seeking to address the issue of improving Australia’s retirement system. This was evident in the Retirement Income Covenant (RIC), the 2023 Intergenerational Report and the Treasury’s Retirement Phase of Superannuation consultation.

The latter, which will close for submissions on 9 February, is seeking responses on how the superannuation system can best provide the security and income Australians need as they live longer and healthier lives in retirement.

“Finally, 32 years after the introduction of compulsory superannuation contributions in Australia, we are seeing a serious attempt to transition our retirement savings system into a retirement income system,” Huppert noted.

“Will this talk translate to better outcomes for Australians? That is the big question for 2024. Past performance suggests that any improvements will be slow and marginal. I hope I am proved wrong.”

Williams concluded: “We look at Australia and say it’s the seventh best country in the world for retirement, but that’s not to say it couldn’t be a whole lot better.”

Click here to read Money Management’s previous feature exploring the growing landscape of retirement income products and the pivotal role advisers play.


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