As pressures step up, many future retirees remain unprepared

A Natixis survey of global retirees found that overall, investors generally anticipate that they will live for about 21 years into retirement, with most believing they will exit the workforce when they are 64.

However, the report stated that this belief is built on “shaky math”.

Global economic volatility, a rapidly shifting job market and even improved healthcare means that traditional views of retirement are inadequate and is leaving many unprepared.

Already, this has lowered investors’ confidence in their retirement. Data from the same report indicated that 40 per cent of those surveyed globally were worried they would not have enough money to enjoy their retirement. Of those surveyed who are still working, 46 per cent “say it will take a miracle to be able to retire securely”. This pattern of fear and unreadiness is also reflected domestically.

“I believe most Australians are not well equipped [to face these challenges in retirement],” Roger Perrett, partner and financial adviser at FreshWater Wealth, told ifa.

“Only three in 10 pre-retirees feel financially prepared for retirement, highlighting a critical readiness gap in retirement planning,” he added, referencing CoreData numbers.

Though the strength of the superannuation system in Australia means that domestic retirement outcomes are still some of the best in the world, increasing uncertainty means this security is coming under greater threat.

The most immediate pressure on traditional retirement models is the rising cost of living and inflation, which is causing money saved in retirement to be worth less once accessible. However, less obvious pressures, such as the fact that people are living longer are also highlighting these vulnerabilities.

“I believe longevity risk will be one of the greatest financial challenges for people. The retirees of today didn’t have super when they started work so many do not have enough in super, especially if they do not have a goal focused on having a great retirement lifestyle,” Perrett said.

“I believe some people may be faced with having to work for longer or perhaps having a humbler retirement lifestyle.”

Workforce volatility can also prove to be a stressor on retirement, especially for Millennial and Gen Z professionals who are still in the early accumulation phase. Perrett warned of the AI revolution and potential reduced government safety nets disrupting the traditional retirement models younger Australians are still in, with inheritance being the likely saviour for some, but not all, members of these demographics.

Echoing concerns about future retirement precarity for Millennials and Gen Z, PlanningSolo founder Jordan Vaka highlighted that increasing outside pressures will make accumulation difficult for younger Australians.

“The reduction in home ownership is an enormous issue,” Vaka told ifa.

“Going into retirement with uncertainty over having a roof over your head is going to mean younger generations need to either accumulate more non-housing wealth or accept housing options that have been traditionally less desirable.”

A forced exit from the workforce is also a challenge to traditional retirement strategies. Lay-offs, redundancies, sudden illnesses and needing to become a full-time carer are all unforeseen events that can damage retirement security.

“The strategies to soften for the potential blow of these events can undermine the strategies we use to help people plan for a more traditional path to retirement,” Vaka said.

“For instance, building up a large war chest of cash – five-plus years perhaps – would protect people from these outcomes. But in doing so, they’d undercut the long-term potential of their retirement savings.”

Both Perrett and Vaka agreed that good, balanced planning is essential to protect against uncertainty.

“Advisers need to create holistic strategies, to ensure there are cash reserves, personal insurances in the event of illness or accident,” Perrett said.

“As well as flexible income streams to cater for unforeseen events.”

Vaka added: “I think the best path we can chart for clients, taking into account these risks, is to prioritise flexibility in their plans.

“Avoid any one-way paths and give clients the opportunity to pivot their arrangements if they need to.”

For Perret, this “one-way path” solution to retirement savings can no longer be relied on, with advisers playing an important role going forward.

He said: “I believe that we can plan for the future to a degree.

“However, advisers need to recommend strategies that can adapt with change, as well as consider risks and future economic uncertainty.”