Many Aussies in the dark about retirement

Whether retirement is a long way into the distance, or just peeking over the horizon, recent research¹ shows half of us aren’t sure we’ll have enough money to retire when we want, or even how much money we’ll actually need.

There’s always been a lot of unknowns when it comes to retirement but throw a global pandemic into the mix, and we’re feeling more uncertainty than ever before. Things we once thought of as quite certain seemingly changed overnight.

And while that’s all led to a whopping 76%² of us believing it’s more important than ever to plan for a secure financial future, we still don’t know what that means when it comes to retirement.

One in three not confident of a comfortable retirement

That’s a lot of Australians feeling insecure about how we’ll manage when we stop working. According to the Association of Superannuation Funds of Australia (ASFA) Retirement Standard³, for a comfortable retirement, a single person needs about $545,000 and a couple $640,000 saved in super. This is assuming you own your house outright. Those numbers might seem pretty scary, but knowledge is power. It’s better to be informed when you still have time on your side than stay in the dark and be left with fewer options.

Plan to bridge the gap

The first step is figuring out how much you need. If you don’t want to use the ASFA Retirement Standard, you can plug in your own numbers to AMP’s retirement needs calculator. Once you know the figure you’re aiming for, how much you currently have, and how many years you are away from finishing work, you can put a plan in place to help you reach your retirement savings goals.

Ways you might consider doing this include:

• Topping up super with additional contributions (be aware of contribution caps).
• Replacing any super that’s been accessed through the COVID early release of super scheme.
• Paying down personal debt like loans or credit cards.
• Making additional home loan repayments so you own your home sooner.
• Consolidating your super accounts so you aren’t paying multiple fees (check you don’t lose important insurance benefits or won’t be charged an exit fee first).

If you’re not sure what steps are right for you, a financial adviser can help you figure it out. If you don’t have one, you can find a financial adviser online.

Plan to protect retirement savings

COVID has made us pay closer attention to how our retirement savings are invested and some people may have seen their super balances drop. If you’ve got 15 or more years before you retire, chances are, your balance will likely have time to recover with the usual long-term market movements. But there’s no guarantee, and it doesn’t mean you can just sit back and relax.

It’s worthwhile checking what type of superannuation investment product your retirement savings are invested in. Diversified or balanced options can help offer some protection against volatile market swings because they’re made up of assets other than shares, like buildings and other infrastructure (although these are still susceptible to fluctuations).

One of the most important things to do is avoid making hasty decisions. Do your research, and if possible speak to your financial adviser if you’re wondering whether it’s the right time to switch investment options or move your super from one fund to another. There may be a risk of locking in losses or unfavourable tax components that could have a significant impact on the kind of retirement you’d like.

Don’t bank on working for longer

Given what we’ve seen with COVID and the economy, it’s hardly surprising 30% of people said they were worried about sequencing risk - a market crash or downturn which significantly reduces the value of super savings. And if that happened, over 50% of us say we’ll work for longer to build our retirement savings back up.

However, that might not be a failsafe backup plan. ABS data shows that of the people who retired in 2018-19⁴:

• 21% had to stop working due to sickness, injury or disability 
• 11% retired because they were made redundant or couldn’t find work.

Add to that the average retirement age was just 55.4 years, working for longer to top up your super isn’t an option for everyone.

Those surveyed said they’re planning on budgeting $72,836 per year in retirement for a comfortable lifestyle. But if savings took a big hit at the wrong time, 42% of us would be willing to consider adjusting our standard of living expectations. While that might sound easy enough to do, retirement is supposed to be about thriving, not surviving.

Educating yourself and taking control of your financial future can help alleviate concerns about retirement. Having a plan and feeling financially prepared can give you peace of mind. If you need help creating a plan, speak to your financial adviser, or find a financial adviser near you. You spend your life working hard, and deserve to feel excited, not anxious, about retirement.

^{1, 2} _{AMP Financial Wellness Report, Behavioural Architects, August 2020}
³ _{https://www.superannuation.asn.au/resources/retirement-standard}
⁴ _{https://www.abs.gov.au/statistics/labour/employment-and-unemployment/retirement-and-retirement-intentions-australia/latest-release}