Adviser enforced behaviours linked to positive feelings about retirement

According to findings in Vanguard’s How Australia Retires, younger Australians (25-34) are expecting to need 59 per cent more annual retirement income than they did two years ago. Under 45s in general expect to need at least $100,000 a year per household to live comfortably. This number is nearly double what today’s retirees spend at $55,000 a year.

“In just two years since our first How Australia Retires report, we’ve seen a sharp rise in retirement income expectations among younger Australians,” said Daniel Shrimski, managing director of Vanguard Investments Australia.

“It’s clear that needs and aspirations for retirement are evolving – and fast.”

Millennial and Gen Z professionals also face increasing external pressures such as inflation, AI fuelled job insecurity and housing.

“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,” PlanningSolo founder Jordan Vaka told ifa.

Despite these rising retirement income expectations, Vanguard found almost half of all working Australians (48 per cent) have no plan for how they will prepare for retirement.

“That’s like trying to run a marathon without knowing where the finish line is,” Shrimski said.

“Having a plan can help Australians avoid the fear of running out — or FORO — which is one of the biggest sources of anxiety in retirement. It’s not just about having enough money but also about having the confidence that your lifestyle is sustainable.”

Instituting a solid retirement plan, the research found, led to retirees being three times more likely to feel highly confident in their ability to support their desired lifestyle, and 65 per cent more likely to have a positive outlook on retirement.

“While a solid retirement plan will mean different things to different people, the findings told us that those with more confidence were likely to have done things like make extra super contributions or obtained financial advice,” Shrimski said.

He also highlighted that “many younger Australians have a pessimistic outlook on retirement”, fuelling the surge in retirement expectations.

As a remedy to this pessimism, Vanguard said a range of behaviours can be instilled in younger Australians to drive more optimistic views on retirement, including:

1. Having a solid retirement plan

2. Boosting financial literacy

3. Being familiar with the retirement system

4. Making voluntary super contributions

5. Engaging with super providers at least twice a year

Financial literacy proved to be of particular concern for Vanguard, which found Gen Z Australians scored a 52 per cent average when asked the “Big Three” financial literacy questions.

“It's really hard to make informed financial decisions without understanding some of the basics, like the age you can access your superannuation,” Shrimski said.

Professional advice can play a foundational role in building financial literacy, as well as boosting these other behaviours in younger Australians.

“There’s been a big focus on financial literacy in schools and various programs. Yet what we know from the research is that this generation is not as financially literate as, say, Gen X,” Neil Rogan, head of distribution for Australia and New Zealand at Russell Investments told ifa earlier this month.

Shrimski added: “Even small steps, like paying more attention to your super and the fees you are paying, can make a big difference.”

However, younger Australians are still under-represented in groups who receive all forms of advice, with a growing gap meaning work needs to be done to bring more Millennials and Gen Zs on board with advice.