Australians expecting to retire anticipate that they’ll need an annual income of six figures annually, but the perception of how much is needed in retirement shifts as people get closer to retirement, according to research from Vanguard.
The ‘How Australia Retires’ report on Thursday morning, which revealed that this attitude contrasts with current retirees who are happy to live on a significantly smaller amount.
Vanguard head of super Shannon Nutter tells Professional Planner people often overestimate how much they need before they retire.
“Before they’re retired, people often think they need a little more,” she says.
“Once you talk to retirees, they’ve already figured out how to live with the income that they have and so you do see a bit of a difference.”
The research found working-age Australians yet to retire say they want an average annual income of $99,000 (based on current dollar value), in stark contrast to current retirees who are content with $68,000.
The current ASFA standard for a “comfortable” retirement is an annual income of $69,691 for couples and $49,462 for single adults.
“Along the lines of what we’ve seen, there’s more optimism among younger, working age Australians for what retirement could mean versus as folks get older,” Nutter says.
She also points to the different attitudes towards retirement ages which change as people age: 18- to 34-year-olds hope to retire before 60; 35- to 54-year-olds by 62; but people aged 55 nd older expect to retire by 65.
“There’s a level of optimism, but if folks have that goal [retiring early or needing more money] in mind, then taking the time to plan appropriately…what’s that going to take today? Having done that thought process will put them in a better place.”
Along with the desire to retire younger with a higher salary, two in five working-age Australians say they want to take some form of extended career break during their 20s or 30s.
“Younger Australians may be re-defining what the path to retirement looks like,” Nutter says, adding this value shift will impact retirement over time.
“The criticality for us in this industry is what does that mean for people’s plans. If they’re thinking about those sort of extended career breaks, how do we ensure they can appropriately account for that?”
Unsurprisingly, the research found people who have a higher level of confidence about their future retirement take better action to prepare, including seeking professional advice.
Just over half (52 per cent) of the 1,800 Australians surveyed stated they are “highly confident” about their readiness for retirement.
Pushing for change
Vanguard officially entered the superannuation sector late last year, touting a low-fee product and a MySuper option.
The announcement came with plans for a pension option and adviser portal, which is still in the works with the aim to launch this year.
“One of the things that continues to be surprising, or less than ideal, is the fact that so many Australians are not very engaged with their superannuation,” Nutter says.
“We see that a significant number of people – one in four working age Australians – don’t know their super balance. One in two don’t know what they pay for their fees.”
Nutter says Vanguard intends to work on improving super fund engagement.
“That’s why we’re focused on a simple, transparent total fee, so people understand what they’re paying,” she says.
“More broadly, this research is really a focus for us on how do we drive meaningful innovation in super and create ways and experiences that enable members to understand what their future balance looks like and what does that mean in terms of a retirement income.”
