New research by Macquarie University’s School of Psychological Sciences, in partnership with Challenger, exploring the retirement experience of clients with a guaranteed lifetime income or annuity in their profile found that those who had access to one such product were overall happier and more confident in their finances once they reached retirement.
The research revealed that the ability to choose when to retire played a significant role in mental wellbeing with those who had proactively chosen to do so, reporting significantly fewer worries (51 per cent) than those who had retired out of necessity (32 per cent).
Notably, the research revealed that two-thirds of respondents with a guaranteed lifetime income had proactively chosen to retire, citing financial stability, wanting to enjoy retirement while their health allowed, and the eligibility to access their super were the key reasons behind their decision.
In contrast, the broader Australian population often enters retirement due to sickness, injury or disability; reaching the retirement age; retrenchment, dismissal, or unemployment; or access to their super, according to the Australian Bureau of Statistics.
Noting the significance of this difference, the study’s lead researcher, Professor Joanne Earl, said the findings highlight the importance of being able to choose when to retire, rather than being forced.
“The findings demonstrate that feeling empowered to choose when and how you step into this next phase of life results in a healthier transition and greater retirement happiness, retirement adjustment, and satisfaction,” Earl said.
According to research, one in five (22 per cent) respondents mostly valued the choice to “focus on what they want to do rather than what they have to do” that was afforded by a lifetime income product.
This was followed by enjoying freedom and flexibility to be spontaneous (20 per cent), family time (17 per cent), and travel (15 per cent).
Comparing the findings to Challenger’s inaugural Retirement Happiness Index Research launched in April, it revealed that retirees with a guaranteed income outperformed those without on every happiness metric.
“Most notably they reported higher levels of financial security (72 per cent versus 56 per cent), mental health (85 per cent versus 78 per cent), and enjoying good social connections (79 per cent versus 70 per cent),” Challenger said.
Speaking with ifa, Challenger’s head of retirement income research, Aaron Minney, said that clients with access to a guaranteed income have greater “peace of mind” about their finances as they don’t need to live in fear of running out of money.
“What it means is they can go out and enjoy their money when they’re young, because if you’re retired and you’re 70, you’re still fit and active and healthy enough to go out, do all the travel, do all the activities, like golf or bowling or whatever you want to do,” Minney said.
He said the research findings highlighted the wants and needs of retirees and the impact guaranteed income can have on their quality of life in retirement.
“I just think this is a great example of getting to understand the mindset of retirees and the fact that they are looking for peace of mind, and they just need a little bit of security,” Minney said.
“We see that when we look at our clients that have got that bit of security, they’re feeling happier, they’re feeling more comfortable, they’re feeling more in control.”
On a recent episode of The ifa Show, Impaktful co-founder Ben Marshan explained how his business will give advisers the tools to help their clients find purpose in retirement.
He explained that clients who had a purpose beyond their primary employment usually enjoyed long, fulfilled retirements “because they had something that they woke up for every morning, that gave them a passion, a cause, a purpose to live their lives”.
Meanwhile those who lack purpose can often go from “fit, healthy, engaged workers to old people in a very short period of time that you wouldn’t otherwise expect”.
Challenger’s research supports the importance of purpose in retirement, finding that purpose was key to a positive retirement outcome.
According to the research, survey respondents ranked having a purpose in retirement as eight out of 10 in terms of importance, and more than half indicated that “enjoyment” was their primary purpose in retirement, followed by “keeping well” (22 per cent).
