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One in two surveyed by State Street are pessimistic about retiring on time, with unexpected expenses after leaving work their biggest concern.
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Inflation, living costs rattle retirement plans
22 January 2024
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11 minute read
Inflation and cost-of-living concerns have rattled retirement confidence in the past year despite the investment market’s strength and “Australia heading in the right direction on retirement incomes”, according to State Street Global Advisors.
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Half of Australians surveyed in its latest Global Retirement Reality Report said they were doubtful about retiring when planned, up 10 per cent from the year prior, while 80 per cent said they had inadequate retirement savings, up 5 per cent.
To the surprise of the asset management giant, the responses failed to reflect the improved market performance observed in 2023.
It found that Australian equities and bonds had recovered from negative territory – return on equities was up 21.3 per cent to 14.8 per cent, and bonds were up 11.7 per cent to 1.2 per cent.
“Given the focus of the superannuation industry on investment returns, we were expecting to see a lift in measures of retirement confidence in 2023,” State Street’s report said.
“And yet, despite this dramatic reversal in markets, many of the measures of confidence appeared to have weakened rather than strengthened among our Australian respondents.”
Almost three-quarters of respondents named “inflation and the cost-of-living crisis” as the issues that affected their confidence the most. This was followed by “mortgage debt/rent and housing crisis” (38 per cent) and medical expenses (35 per cent).
“These three were selected more often than factors like having spare money for savings, the complexity of the superannuation and pension system and lack of trust in super. Clearly confidence in retirement is a function of much more than simple investment returns,” the report said.
As a result, 46 per cent doubted they would be financially prepared by the time they planned to stop working and 50 per cent thought they would be unable to retire when they wanted.
The proportion of respondents who said they could never imagine being financially secure enough to retire rose from 10 per cent to 14 per cent, and the biggest concern in retirement planning was being unable to cover an unexpected expense such as a medical or housing cost (34 per cent).
Shaken retirement confidence had also led to people reconsidering “stereotypical negative statements” about annuities, the report found.
More respondents included annuities in their definitions of “retirement income” (up 6 per cent from 2022) and those believing annuities “don’t represent good value for money” dropped from 29 per cent to 16 per cent.
State Street speculated the change in attitudes could be due to either higher interest rates, education, or “some other factor”.
Meanwhile, ambivalence towards sustainability matters emerged with the proportion of respondents expecting super funds to make sustainable investments dropping from 67 per cent to 56 per cent. By contrast, global attitudes changed from 54 per cent to 59 per cent over the same period.
“Australians have moved from having notably higher expectations than the rest of the world to having similar, or even lower, expectations of sustainability,” the report said.
“It is unclear whether this shift in attitudes to sustainability is due to recent regulatory action, politics, changes in marketing by product issuers, or other issues rising to the forefront of consciousness.”
When it came to accessing retirement savings, the most popular model among respondents (42 per cent) was having flexible access in the early years of retirement and then using the remainder for a stable income in later years.
This compared to 28 per cent wanting continued flexibility or 30 per cent wanting a stable income stream.
The report said these preferences “loosely reflected” principles of the government’s retirement income covenant, which required super funds to have strategies that identified and assisted fund members’ retirement income needs by July 2022.
“Our survey confirmed broad support for the principles in the covenant,” it said. “Australia is heading in the right direction on retirement incomes on both the policy and industry fronts.”
Despite this, 40 per cent of respondents said they would be comfortable “figuring it out” themselves when withdrawing retirement savings, and 37 per cent wanted to work with a financial adviser.
Women were 8 per cent more likely to use an adviser while 14 per cent more men wanted to “figure it out” for themselves.
Responses that involved active guidance from super funds were also less popular, the report said.
State Street Global Advisor’s Global Retirement Reality Report surveyed 608 Australians and 4,257 people globally through YouGov.
The latest survey was conducted during the third quarter of 2023, 12 months after its 2022 survey.
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