Advice / Superannuation

How not to set pre-retirees up for disappointment

What makes someone truly happy in retirement?

A well-known concern among older Australians is the fear of not having enough money to last them through their retirement years. Indeed, CoreData’s Best Possible Retirement research has revealed that nearly two thirds (64.5 per cent) of pre-retirees (defined as Australians aged 45 or above who are yet to fully retire) worry about being able to fund their retirement.

Past CoreData research on pre-retirees suggests that one likely contributor is the widely-publicised claims that pre-retirees need $1 million (or another figure) in superannuation for a comfortable retirement, or that pre-retirees need to have a certain amount annually for their desired standard of living in retirement. 

There is certainly merit in providing concrete goals that pre-retirees can work towards. However, while these figures were undoubtedly intended to motivate pre-retirees to boost their superannuation ahead of retirement, it appears that for some, they have had the opposite effect.

For some, these figures appear to have inadvertently frightened them off, as the figure is typically seen as being out of reach, as illustrated in this verbatim quote from a past pre-retiree focus group participant.

“[How does that make you feel when someone says you need $1 million in super?] … It’s a really terrible feeling that it seems that you will never have enough money, and then you don’t dare to spend any obviously because you’re not going to have enough.”

Focus group participant

The perceived complexity of superannuation rules and the constant changes to these rules further exacerbate the issue. Overall, these figures may end up setting pre-retirees up for disappointment leading up to and in retirement, certainly the polar opposite of what the industry would like to achieve.

So what should the superannuation and broader financial services industry do? For a start, we need to continue assuring pre-retirees that there is no single universal ‘magic’ figure, and that how much they might need depends on a number of things, including day-to-day expenses, eligibility for Government entitlements and the kind of lifestyle they want in retirement.

What’s the ‘magic’ figure?

We need to continue helping pre-retirees work out what their ‘magic’ figure might be. We then need to continue helping pre-retirees adjust their expectations and work out what concrete steps they can potentially take to get there and make the most out of their circumstances. These could be done through a combination of communications or engagement activities, online calculators and tools, scaled advice and comprehensive advice.

However, focusing only on the financials misses the bigger retirement picture, which is more than just about money. While having enough money is undoubtedly important, it is evidently not the be-all and end-all. The Best Possible Retirement research has revealed that by far their greatest worry in retirement among retirees is their health (47.2 per cent), compared to only one in eight (12.2 per cent) who cite outliving their savings.

Similarly, more than two in five (43.7 per cent) retirees have ranked staying healthy as their number one priority in retirement, while only one in five (21.7 per cent) have ranked having enough money. Family is also a key priority in retirement, with a similar proportion (20.9 per cent) citing maintaining contact with family as their number one priority.

After all, pre-retirees tend to have relatively modest ambitions for retirement, with a focus on staying financially independent, being healthy and maintaining or improving their lifestyle. 

The Best Possible Retirement research has revealed that the majority (62.3 per cent) of pre-retirees aspire to a retirement in which they can change their lifestyle and are able to relax, as well as being involved with the community or causes they are passionate about – as illustrated in these verbatim quotes from past pre-retiree focus group participants.

 “[What does a successful retirement look like for you?] A successful retirement will be where I don’t have any limitations financially and I can … continue the lifestyle I have at the moment and ensure I reward myself from a lot of hard work.”

Focus group participant

“What I want to achieve in my retirement is to be physically independent … and the financial independency. I really think this is the dream, just to live a normal life.”

Focus group participant

These findings highlight very clearly that retirement is not just about money, it is about life holistically and overall well-being. For the superannuation and broader financial services industry, while the core focus should remain on helping pre-retirees from a financial perspective by building their wealth, more needs to be done to facilitate pre-retirees in maintaining their health and social connections.

This could be done in the form of communications or engagement activities that provide useful advice, as well as encourage pre-retirees to examine their holistic circumstances and seek appropriate professional advice or support when necessary. Only then will we be able to avoid setting up pre-retirees for disappointment and truly help them achieve the best possible retirement.

For more information on CoreData’s Best Possible Retirement research, please contact Jason Andriessen.

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