‘Triple threat’: Key risks endangering underprepared retirees

A new report from Fidelity International has revealed that almost a third (29 per cent) of Australians over 50 are unprepared for the longevity of retirement as life expectancy grows, fuelling the fear of running out, as few seek financial advice.

Earlier this year, Deloitte Access Economics’ Advice in 2030: The Big Shift report, produced in collaboration with Iress last year, found that some 23 per cent of Australian adults will be aged 65 or over by 2034, signalling a strong demand for retirement advice over the next decade.

Looking at retirees’ prospects now, Fidelity’s latest report, The Longevity Revolution: Preparing for a New Reality, found that Australians over 50 have an expected average retirement saving of around $540,000, leaving some 29 per cent with a shortfall of at least a decade.

While the fear of retirement savings running out can be seen across the board, around half (51 per cent) of pre-retirees surveyed said they may need to work longer in order to afford retirement when considering the possibility of a longer life.

Likewise, Natixis Investment Managers’ Global Retirement Index, released in September, found that 49 per cent of Australians said they are concerned about not having enough money to enjoy their retirement as inflation and the high cost of living continue to put negative pressure on saving capacity and overall household funds.

This comes as the life expectancy continues to increase, with the Australian Bureau of Statistics (ABS) reporting an average lifespan of 81.1 years for men and 85.1 years for women in 2024.

Despite growing concerns, Fidelity found that while 65 per cent of Australians have executed some sort of retirement planning, just 15 per cent of those sought professional financial advice to do so.

Notably, Australia fell significantly behind its APAC peers, with Taiwan, Singapore, and Hong Kong reporting higher levels of financial advice engagement in retirement planning, with 85 per cent, 81 per cent, and 79 per cent, respectively.

However, it is important to note the hurdles for accessing professional financial advice in Australia as the lack of active advisers against the strong demand and high cost of service continues to hinder accessibility.

Speaking on the report findings, Simon Glazier, managing director of Australia at Fidelity, suggested that the lack of engagement with a financial adviser poses some risk for Australians when it comes to their investment decisions.

Namely, the report found that 36 per cent of pre-retirees are planning to rely on private investments outside of a pension. When it comes to what they are currently investing in, both retirees and pre-retirees have cash as their most prominent form of investment exposure (70 per cent), followed by stocks (31 per cent) and property (20 per cent).

Glazier added: “As life expectancy continues to rise, it’s increasingly important for people to shift their approach and move away from holding large amounts of cash and instead investing more actively. However, given the high liquidity of cash, and the small percentage of people seeking professional advice, these active investment options may be misunderstood. The length of time savings are invested, especially within a diversified portfolio, becomes crucial for retirement security.”

Retirement fears

Looking at the top retirement concerns in Australia, Fidelity found that rising healthcare costs, unexpected major expenses, changes to government policies regarding pensions and taxation, and insufficient funds were top of mind.

In a similar vein, Natixis revealed that around a third of survey respondents were concerned about inflation (32 per cent), an inability to save enough to retire (35 per cent), and the cost of long-term healthcare (34 per cent) eroding their retirement savings.

Speaking on an IML webinar this week, Carl McMinn, distribution manager for Queensland and Western Australia at Natixis, said that sticky inflation is proving a challenge as retirement savings “now need to work a little bit harder” as it erodes Australians’ purchasing power.

Latest CPI data shows inflation rose 1.3 per cent in the September quarter and by 3.2 per cent annually. This marked the highest quarterly rise since March 2023, with the primary driver of this quarterly movement being electricity costs, which rose by 9 per cent over the quarter.

On top of this, he noted that growing government debt may also put pressure on retirees as governments may be forced to reassess pension policies, meaning Australians would “more than likely be more responsible for their own retirement income”.

Adding to this, IML portfolio manager Michael O’Neil said on the webinar that Australians planning for their retirement now face the “triple threat of longevity, risk of sequencing of returns, of inflation or rating eroding their purchasing power”.

While there are a number of concerns pre-retirees and retirees now face, Glazier said that the prospect of a longer life “should be something to look forward to, not fear”, highlighting the importance of informed retirement planning.

“We have an opportunity to create the conditions for people to not only live longer, but to also feel more financially secure and have a fulfilling retirement. Organisations and policymakers who embrace longevity wisely will not only support individuals in achieving security and purpose, but also establish a society that is wealthier, healthier and more cohesive than the one before it,” Glazier said.