You’ve quit full-time work, now what to do with that nest egg? Independent consultant and adviser Stephen Huppert says a wider range of products and services must be developed to deliver the best retirement possible.
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ou’ve worked hard and are starting to think about life after full-time work. You have nearly $500,000 in superannuation and are thankful that Australia introduced compulsory superannuation contributions when it did. But you can’t stop yourself wondering: Do I have enough? You’re not alone. Survey after survey finds that the fear of outliving one’s savings is one of the top fears for retirees. YourLifeChoices’ 2020 Ensuring Financial Security in Retirement survey found that of the 3000 respondents, only 13 per cent were confident their current savings and income would last for their lifetime. You find plenty of articles on the topic, how much super do I need to retire?, but very little to help you work out what do with your super when you do retire.
The key question to ask is: How much income will I have when I retire and how long will this last? To help answer this question, you need to have some idea of what life after full-time work will look like, how long you might expect to live, and how to convert your retirement savings into retirement income.
The products offered by most superannuation funds are, at best, only a partial solution …
From the government to the superannuation industry to the media – everyone is obsessed with saving for retirement, but without enough attention given to what comes after retirement. Yes, it is important to do whatever we can to maximise our retirement savings but for many of us, there is not much we can do, other than keep an eye on our superannuation, make sure we are in a good fund, and make additional contributions if possible.
Preparing for retirement is much more than asking, Do I have enough? The purpose of saving for retirement is to produce income in retirement, but retirement income was mentioned only once in the recent Federal Budget, and that was a reference to the deferral of the Retirement Income Covenant. This covenant was first announced in the 2018 Budget and, if ever implemented, will require fund trustees to consider the retirement income needs and preferences of their members. It is now due to commence on 1 July 2022. As pointed out in this edition of the Retirement Affordability Index by the Actuaries Institute’s Andrew 4
Boal, Challenger’s chairman of retirement income Jeremy Cooper, financial services executive Jeremy Duffield and Super Consumers director Xavier O’Halloran, it is time to start focusing more attention on what happens to Australians after full-time work, to start having more discussions about what comes next.
Life after full-time work
Jeremy Duffield, who works with Australians approaching retirement, says we need to change the conversation from, “I am retiring from …” and start using the language “I am retiring to …”. Leaving full-time work is not an ending but a new beginning. Those contemplating retirement should start thinking about what comes next. The transition from full-time work involves understanding not just financial goals but also non-financial goals such as health, family and purpose.
Understanding life expectancy Once you have started thinking about what life after full-time work might look like, it is time to assess different strategies and products. When considering the most suitable solution, first you need to estimate how long you could live. Of all the risks in retirement, longevity risk is the one least understood. In simple terms, it is the risk of outliving your savings. Many base their retirement planning on life expectancy without understanding what this actually measures. It is the average for how long a group of people are expected to live based on age and gender.
YourLifeChoices Retirement Affordability Index™ November 2020
