Complexity of retirement finances a challenge for older Australians

The value of advice is hitting home at retirement for older Australians, who find the retirement system complex and are extremely concerned about rising cost of living.

According to AMP’s Retire with Confidence white paper, which takes a closer look at the growing maturity of the superannuation system, three in four Australians aged 50 and over find it challenging to navigate the retirement system. 

They have also not sought financial advice for retirement planning. 

Meanwhile, three in five wish they’d started planning for retirement earlier in life. 

VIEW ALL

View all

Alexis George, AMP chief executive, noted the concerning declining levels of financial literacy around retirement. 

“A staggering three in four older Australians are struggling with the complexity of managing their finances for retirement, with more than 40 per cent having no idea if they’ll be eligible for the age pension or not,” George said.

“Seven out of 10 older Australians also don’t know what an account-based pension is – even though it is the main income-generating option for Australians in retirement.

“This lack of financial knowledge about retirement is despite Australia having one of the world’s highest GDPs and the fifth-largest pool of superannuation savings in the world.

“Lifting levels of financial literacy when it comes to retirement is a critical challenge for Australia, and one the government and industry needs to collectively address.”

According to AMP, quality advice will be key as Australia’s super system gets closer to maturity and shifts its focus to ensuring that capital delivers more choices and an emotionally rich retirement.

Ideally an adviser will be deeply involved in their clients’ accumulation strategies, ensuring their investment strategy is aligned with their needs and risk profile and optimising spouse contributions and co-contributions, among others.

“The transition from living off your pay packet to eating your capital is incredibly complex,” said Shane Oliver, chief economist at AMP.

“And in a world where the investment rules that applied for the past 20 years are changing, asset allocation and investment decisions are going to get more complex. Most clients need more advice.”

The government’s 2023 Intergenerational Report, released in August, found the number of people aged 80 and over is expected to triple over the next 40 years to more than 3.5 million people by 2062–63.

When it comes to aged care, the firm identified client needs revolve around issues on social security entitlements, dealing with the family home, understanding and funding aged care, and estate planning. 

Edwina Maloney, AMP group executive for platforms, noted three distinct cohorts crucial in the system delivering on its promise to older Australians.

“Government must enact regulatory settings that are stable, protect consumers, support competition and foster innovation, and are targeted solely at the needs of older Australians. In contributing to super, members give up current income and lifestyle and pay significant opportunity costs (including delayed home purchase). They trust that the ‘system’ – which is all of us – will pay them back in retirement,” Maloney said.

“We in the financial services industry must create new products that pay an income for life and meet the family, economic and lifestyle needs of our clients. Solutions that help them spend their retirement – and their retirement capital – confidently. And we must continue to earn them the investment returns that fund the lifestyle our clients expect. We’ve done that in accumulation. Now we need to do it in the ‘trickier’ space of decumulation.

“Finally, as our system evolves from accumulating savings to spending those savings, it will be more important than ever that financial advisers deliver personalised, integrated, empathetic advice and do it at a price that brings that ‘advice dividend’ to the widest range of people.”