Report reveals many Australians have unrealistic retirement expectations

A new study by Vanguard has shone a light into Australians' attitudes towards retirement, and how we feel about this phase of life.

The report, titled How Australia Retires, surveyed 1,814 people, 20% of whom were retirees, and the remainder were working-age Australians.

Here are the study’s key findings:

1. Australians 'want' more than they 'need'

50% of working-age Australians would like an income of $99,000 per annum in retirement.

Those already retired say they wish for an average $68,000 in yearly income.

These figures differ significantly from the minimum incomes that those surveyed think they’ll need in retirement.

Those of working-age believe an average $62,000 each year will be enough in retirement, while retirees say $41,000 should be sufficient.

The obvious question is: why are the expectations of working-age Australians toward retirement income so high?

Vanguard has four possible explanations:

• The working-aged can’t accurately predict what their financial needs will be, especially due to retirement not being in their near or immediate future.
• They can’t envision their retirement lifestyle, thereby making it difficult to estimate future income and expenses.
• They’re less likely to own their own home, leading to expected rental expenses.
• They’d like to pursue different retirement activities than current retirees, which will require more income. For example, those of working-age in the survey indicate a desire to travel in retirement, whereas current retirees prioritise spending time on hobbies.
  
  

2. Superannuation is only part of the plan

Half of working-age Australians view superannuation as a key part of their retirement plan but expect it to account for a smaller proportion of their total assets than current retirees.

54% of the working-aged estimate that their super balances constitute 50% of less of their total investment balances. In other words, most of their wealth is tied up in other assets.

One in four of the working-aged see investment property as a key part of their financial plan.

By contrast, one in three current retirees consider super a core part of their financial plan. And only 10% of them have an investment property.

3. Most Australians do their own research

Almost two-thirds of working-age people have never seen a financial adviser.

Consequently, financial advisers aren’t the leading source of professional guidance for these people. They’re more likely to go to their super fund first, followed by banks, accountants, and government websites. They’re also more likely than current retirees to do their own research into financial matters and seek guidance from family and friends. And they’re also more likely to get financial information from digital sources like podcasts, blogs, and social influencers.

In contrast, current retirees principally consult professional sources for financial guidance, such as financial advisers or their super fund.

4. Planning builds confidence

People who’ve received professional financial advice are twice as likely have a clear, detailed retirement plan, and are twice as likely to feel confident that they’ll be able to fund their retirement.

Those who develop their own financial plan rather than getting professional advice are more likely to prioritise budgeting and regular savings. Conversely, those with a financial plan developed in consultation with an adviser put more emphasis on super contributions.

5. The two journeys to retirement

Broadly, Australians take one of two journeys towards retirement – a so-called low confidence journey or a high confidence journey.

Those who are highly confident have actively prepared for retirement. They have or had a good idea of what they’ve needed to do to achieve the retirement they desired and are optimistic about this phase of life. They’re more likely to set budgets, prioritise savings, and regularly contribute to their super.

Those who aren’t as confident in their journey to retirement are more inclined to have negative feelings such as worry and anxiety. They feel unprepared for retirement, lack understanding or interest in planning for this later phase in life, and are more concerned about not having enough income in retirement.

The report notes that Australians tend to start their working lives feeling confident about retirement, but that confidence wanes the longer they go without a retirement plan.