Jon Shead

Confidence in retirement isn’t linked to just investment returns – the flexibility of access to capital early on coupled with income security in the later stages of retirement is the preferred retirement income model for most retirees, research has found.

The ‘Global Retirement Reality Report’, published by State Street Global Advisors and based on an online survey of 3649 individuals across the US, Canada, Ireland, and the UK, and just over 600 in Australia, shows that in Australia four key confidence indicators have declined since the end of 2022.

Fewer Australian respondents in the latest survey (20 per cent) than in the previous one (25 per cent) believe they will have saved enough by the time they retire, and more people now (14 per cent) than before (10 per cent) say they can’t imagine being financially secure in retirement.

More people say now (50 per cent) than before (40 per cent) that they are not confident they’ll be able to retire when they plan to, and a greater proportion now (46 per cent) than previously (40 per cent) say they are not optimistic they’ll be financially prepared by the time they plan to stop working.

These declines come despite much stronger local and international equity, real estate investment trusts and bond markets at the end of 2023 than at the end of 2022, and the report notes that “clearly, confidence in retirement is a function of much more than simple investment returns”.

Inflation and the cost-of-living crisis, mortgage debt and rental repayments and medical expenses weigh most heavily on confidence, the report says – even more so than the complexity of and a lack of trust in the superannuation system.

These factors might help to explain why the report also shows that retirement income solutions that offer flexible access to capital in the early stages of retirement and income security in the later stages are the preferred model for most (42 per cent) respondents. Flexible access to capital would enable greater drawdowns when needed to help cope with rising costs and unexpected expenses.

The report says that around a third (34 per cent) of respondents said “not being able to cover an unexpected expense such as a medical or housing cost” was their biggest concern in planning for retirement.

“Confidence is about a lot more than whether you’re just saving or not, or how much you’re saving,” SSGA Australia head of investments Jon Shead tells Professional Planner.

“It’s pretty complex, because it involves interactions between the super system and the age pension. But going beyond that, [it goes] to other savings, to investment properties, to health costs, aged care, all those sorts of things. Confidence is a little bit more nuanced or complex.”

Shead says the decumulation phase of superannuation is significantly more complex than the accumulation phase and demands new and different thinking from fund trustees on advice and products to deliver solutions that give members confidence.

The report notes that it is “hard to imagine a robust ecosystem for retirement incomes that doesn’t include affordable and accessible advice” but reveals that slightly more more people would prefer to work out how to sustainably draw down retirement savings than would prefer to do so in conjunction with an adviser (37 per cent).

“Responses that involved more active guidance from the superannuation fund itself were less popular,” it says – but it’s unclear whether the latter finding is due to a lack of confidence in the services that are currently offered by funds, or whether it reflects the fact members can’t currently get that guidance from their fund.

In any case, the report says the interaction of the Age Pension, superannuation and healthcare creates complexity in the Australian system, and “it is for this reason that the retirement ecosystem needs both advice and innovative products from superannuation funds”.