The impact of advice in retirement

The Australian superannuation system has built up a huge community chest of capital. As the system gets closer to maturity, the focus shifts to ensuring that capital delivers more choices and an emotionally rich retirement. The key to success is quality advice.

“When people are saving for retirement they’re accumulating capital,” says Shane Oliver, AMP Head of Investment Strategy and Chief Economist. “In accumulation mode, everyone has one goal – build maximum capital. In retirement the goals shift, they’re as unique as the individual.”

Growing need for advice

What you want in retirement depends on multiple variables. Your health and that of your partner. The age of your children – and your parents – and the shape of those relationships. Longer lifespans and social change mean today’s retirees are more frequently dealing across generations and often with blended families.

So while some see retirement as a long period of rest, many will become carers up or down the family tree. There will be those who explore side hustles, study, seek new jobs. While some need to get away and explore, others relish the time to live in their homes rather than just sleep there.

That’s why financial advice is a key element of the retirement landscape. There may be a time when Artificial Intelligence can help manage your financial situation by taking into account your unique needs and desires. But today, it’s your financial adviser who can close that loop.

“The transition from living off your pay packet to eating your capital is incredibly complex,” says Shane Oliver. “And in a world where the investment rules that applied for the past twenty years are changing, asset allocation and investment decisions are going to get more complex. Most people need more advice.”

Freeing you up to enjoy retirement

Ideally your financial adviser will be deeply involved in your accumulation strategies by:

• maximising your personal contributions
• optimising strategies like co-contributions and spouse contributions     
• making sure your investment strategy is aligned to your needs and risk profile.

Yet it’s at retirement that the value of advice starts to really hit home. “A lot of the time my retiree clients come to me for permission. They want to know they can do things – like a holiday – without risking their long-term lifestyle,” says Clinton Smith, Director at Abound Financial & Lifestyle, Melbourne.

Today, a lot of government rules in areas like Centrelink, transfer balance caps and total super balance limits are built around individual numbers. “We’re focusing on using the two individual balances effectively,” Clinton says.

Alex Brown, a financial adviser with practices in South Australia and the Northern Territory says, “You need a degree in practical psychology. You’ve got to be able to dig beyond a client’s first responses. Is it really a money issue? Or is it family or health that’s driving their decisions? What can you do to simplify it all for them?”

Alex says the solution is personalisation. He uses financial planning software to tailor projections and develops his own explanatory YouTube videos, brochures and even cartoons, to show clients how the various elements of their financial plan could work.

Pockets of cash, buckets of growth

Both Alex and Clinton say their clients respond to a retirement income strategy built around ‘buckets’. Cash and term deposits buckets to meet short-term income needs and buckets of growth assets in account-based pensions. “The buckets approach helps them stay in the market,” says Clinton Smith. “And the more sophisticated ones will tip funds into the growth bucket when markets are down.”

Alex Brown has begun to use the MyNorth Lifetime Income account with his clients, often alongside an account-based pension. “For some clients, longevity of capital is king,” he says.

“Plus, with an index-linked account I can usually get clients more income in the earlier years of retirement. I have one client who can fund a cruise a year just from the extra income they generate from that strategy.”