Research from REST, one of Australia’s largest industry superannuation funds, has found that 35 per cent of Australian baby boomers are not financially prepared for retirement. Only 14 per cent said felt financially prepared. The remaining 51 percent felt they were somewhat prepared. This is despite the fact that those who fall into the baby boomer category are fast advancing on retirement age.
Why is this a problem?
For starters, the baby boomer generation accounts for a large percentage of the Australian population. There are about 5.6 million people who are approaching retirement age – that’s a lot of people who may be in for a very tough time as they age.
The research from REST found that baby boomers have a high expectation about what their retirement will be like. Yet, as a group, they lack an understanding of how much money will be required to fund a comfortable retirement.
The Association of Superannuation Funds of Australia (ASFA) provides estimates of how much it costs to fund different styles of retirement. ASFA data indicates that a comfortable retirement costs $56,236 a year for a couple and, $41,090 a year for a single retired person.
Baby boomers surveyed by REST nominated amounts significantly lower than these as the cost to maintain a comfortable lifestyle. In fact, 49 per cent of singles and 61 per cent of couples underestimated the cost of retirement.
On top of that, half of the respondents in the REST survey believe they will not have to make any sacrifices in their retirement due to financial constraints. Those surveyed indicated that internet connectivity, mobile phones, domestic holidays, international holidays, dining out and health insurance were not things they were prepared to give up in retirement.
So, expectations of a quality retirement are high, but there’s a mismatch between how much baby boomers believe it will cost, compared to the actual costs.
The question is, what will happen? If baby boomers cannot fund the retirement they expect, then there will be a lot of retirees who are not going to cope emotionally, or financially.
Why do they not have a plan?
The REST survey also found that 70 per cent of baby boomers have not sought any financial advice about their pending retirement.
Superannuation remains the most common source of income for the majority of baby boomers for a pending retirement. Yet, most baby boomers are leaving it too late to get financial advice about their superannuation. They have not sought advice on how to invest, how much they need and how to make it last through their retirement.
Many reasons are given for not seeking financial advice about retirement. Responses range from not feeling any need for advice, to some considering it too expensive and worse, not trustworthy.
The result? Less than half of baby boomers approaching retirement have a good understanding of how much they have saved in superannuation. Less than half take an active interest in trying to grow this balance to fund their retirement. And, one quarter admit they are ‘just closing their eyes and hoping for the best.’
No matter which you cut it, there is a potential retirement disaster looming for a large portion of our population.
They’re a complicated group
Baby boomers are different from previous generations in many ways but especially when it comes to retirement. They were born between the end of World War II and at the start of the rise of The Beatles. This year they are aged between 67 (born in 1946) and 49 (born in 1964).
Many boomers plan to ease themselves into retirement, starting off by slowing down and working part time. Those taking this approach will continue to earn and make contributions to their superannuation until they cease work entirely. Previous generations were more likely to work full-time up until they retired.
Up to one third of unretired baby boomers have someone who is financially dependent upon them. The needs of any dependents will have to be taken into consideration when thinking about when to (or whether they can) retire. So, for many, it’s not just about themselves and their retirement, it’s also about family members still being reliant upon this generation.
Despite this, and the lack of planning for retirement, most baby boomers are looking forward to retirement, with 62 per cent looking forward to relaxing and enjoying the fruits of their labour. Only 16 per cent indicate they are not looking forward to retirement.
However, 40 per cent do have some reservations about finishing their work or career. This is a generation that, in many respects, was defined by being able to have reliable work and career choices. Again, this something that was not often the case with previous generations.
What can be done?
For some baby boomers, they are going to have to adjust their expectations regarding the lifestyle they wish for in retirement. Some may end up working for much longer than they would like.
Younger boomers may be able to begin planning and saving now, so that within the next few years they will have more saved in superannuation to fund a retirement more in line with their expectations.
But, everyone can learn something from this generation. Generation X and those that follow should examine their retirement expectations and assess if their current rate of saving will suffice.
Late advice about retirement is better than no advice at all. Speak to your accountant, your superannuation provider or a financial planner.
Australian Superannuation Fund of Australia (ASFA)