Early retirees – and those approaching retirement – are given insufficient understand for how much they need to retire, according to a panel.
Speaking on a panel at the Household Capital Three Pillars Forum, Ben Hillier, AMP general manager retirement solutions, said people approaching retirement and early in retirement were the least confident about their retirement finances.
“We really haven't prepared them well to give them a good understanding of how much they'll need to retire, how much retirement income is sufficient for a lifestyle basically commensurate with their expectations,” Hillier said.
“But we do see that as people progress through retirement, they become more and more confident and are able to, I guess, have more realistic expectations about what their lifestyle is going to be like.”
The Retirement Income Review noted retirement income involved the returns from investing the super balance, not actually drawing down the balance itself and Hillier said only “a little over half” of retirees would draw the minimum.
“Look, the numbers are pretty clear, we see about a little over half of retirees typically will draw the minimum, and that's at any one point in time,” Hillier said.
“There's actually many more than that who will draw the minimum at some point of their retirement. We often see people start retirement, perhaps they have some advice that tells them they can draw above the minimum.
“But we find that after the first economic shock, for example, they switch to cash, they switch back to the minimums and they do lose confidence. We see far fewer people able to maintain a level above the minimum through retirement.
“Quite sadly, as we've seen during COVID-19 and also through the Global Financial Crisis (GFC), when the government reduces the minimums to 50%, then the experience is typically about 75% of people who draw the minimum, actually reduced them.
“It's just an intolerable reduction of income, and yet people are doing that because of that lack of confidence.”
Jeremy Duffield, SuperEd and Retirement Essentials executive chair, said retirees were not given the tools they needed.
“We've been asking these people to save all their life through the accumulation phase of superannuation, and now we're expecting them to draw down their super so that they can fund a retirement lifestyle as suitable,” Duffield said.
“It's a very, very complex challenge to actually workout how much you can sustainably spend. But we're not consistently giving them retirement income forecasts that they can use to guide them along the way.
“They're finding the age pension quite difficult to apply for, because they find it complex and a bit daunting. There's a lot more we can do in providing tools and help, recognising that only about 15% of Australians are getting advice from a financial professional.”