The lifespan of Australians is growing and with it people seeking financial advice to plan for their retirement. While this is a great opportunity for advisers it comes with challenges, one being that the goal of the client isn’t always aligned to that of the adviser.
“One of the bigger challenges that happen in those engagements is that the goal of the conversation is not always clear and is not always aligned between a client and an adviser,” Yochai Shavit, director of research at Stanford Center on Longevity, said.
The increased life expectancy, which could mean that people spend as many years working as they do in retirement is not “realistically sustainable”, according to Shavit.
Research from Challenger’s Institute for Lifetime Income found that an Australian couple aged 65 each has a 43 per cent probability of at least one partner living to 95.
“That radically changes the thought of how long does my retirement savings need to last for,” said Jonathan Kearns, Challenger chief economist.
On top of that, there is the question of health. “Even as longevity has been increasing, the share of your total life that’s in good health has been declining. We’re having a larger share in ill health, and that means more of retirement is in ill health, and changes the thoughts on what sort of spending might you need? What’s retirement going to be like in those years?”
Over the past two decades, life expectancy at age 65 for women has increased by 1.8 years, with 1.1 years of this in good health and 0.7 years in ill health. For men, it is 2.6 extra years, with 2 years in good health and 0.6 years in ill health, according to Kearns.
“A rising share of extra years of longevity being in ill health reflects rising risk factors in the population, such as obesity, poor diet and metabolic risk, and improvements in health care that enable people to live longer with chronic disease, such as cancer and heart disease. As the population ages, increased rates of dementia are another important contributor to increased years in ill health.”
There is uncertainty about when people are going to retire, which can depend on factors beyond their control such as ill health or retrenchment. But, to avoid drawing on their superannuation, some have taken on part-time work.
The uncertainty around when an individual will stop working and how long this individual will live make it hard for retirement planning and some people have underspent during retirement in fear of running out of money.
The Stanford Centre has done research surveying US clients on what they need versus the conversations they are having and, according to Mandy Mannix, principal advocate, retirement at Challenger, “there’s a lot of conversation around investment markets and interest rates and inflation, but not enough that connects it to their lifestyle.”
Another challenge to advisers in Australia is scale. The cost of advice is high due to all the regulatory complexities and advisers can have up to 145 clients at the same time, according to Challenger managing director and chief executive Nick Hamilton. For advice to become affordable in Australia, that number would have to increase considerably, which can be done not necessarily just with AI but it can be automation or any other form. If the time invested in creating a statement of advice could be reduced that would free adviser’s time to see more clients.
Mannix said that she has great confidence in the ability of Australian financial advisers to scale their access. But there is also a heightened awareness of the need to understand the communication journey first for advisers and advisers that service super funds.
“And I think that’s one of the things that has held them back,” she said, adding that this isn’t a bad thing and that advisers are managing to scale their services.
Lastly, Shavit said that financial advisers need to get equipped to offer plans for a 20 to 30-year journey as opposed to five years or a decade.
Leave a Comment
You must be logged in to post a comment.