Latest News

Preparation and planning the keys to high retirement confidence: Vanguard study

Australians with the highest confidence about their future retirement tend to take the most purposeful action to prepare, which may include accessing advice, having a detailed plan or making regular extra contributions to their superannuation.

Meanwhile, those with the lowest confidence about retirement tend to be the least actively prepared. Often, they have never accessed advice, have little understanding of how they can achieve their retirement goals, and expect to be more reliant on the Age Pension after they retire than those with higher retirement confidence.

Vanguard’s inaugural How Australia Retires study, released today, found that high retirement confidence is not necessarily dependent on age or income, but rather on having a plan.

52% of participants surveyed who presented as highly confident about their retirement readiness feel that they know what they need to do to achieve the retirement outcome they desire and are optimistic about this phase of their life. They are relatively likely to use budgets and prioritise their savings.

By contrast, most Australians surveyed who presented as having low confidence about their retirement readiness do not have a plan and feel the most unprepared. They do not tend to make regular additional super contributions and are generally less optimistic and more likely to feel disinterested, anxious or worried about this later phase of life.

Among the Australians surveyed who are generally older and who have typically taken less action to prepare, only 27% feel optimistic about retirement and just 23% feel very confident. Many are concerned about not having enough income in their retirement and are uncertain about the actions they could take to achieve the retirement they envision.

Other key findings

Vanguard’s survey of more than 1,800 working and retired Australians aged 18 years and older also found:

• 50% of working-age Australians consider super an important component of their retirement plan but expect to rely on it less than existing retirees. As part of this, more than half of working-age Australians (54%) estimate that their super balance constitutes 50% or less of their total investment balance. 1 in 4 in this cohort highlight investment property as a key part of their retirement plan, with financial assets and their home making up the balance of their investments. By contrast, only 1 in 10 retired Australians cite investment property as an asset.
• Despite it still being an important component of total retirement assets, relatively few Australians engage with their super. 1 in 4 working-age Australians are unsure about their current superannuation balance, and 1 in 2 are unsure what they pay in super fees. In addition, 50% of working-age Australians have either not made contact with their superannuation fund in the last 12 months or have never made contact at all. For retirees, this scenario is even more common, with almost 3 in 4 having not made contact in the last six months.
• Younger Australians are generally relatively confident about their retirement, but this confidence wanes as they get older and the longer they go without a retirement plan.

• Almost 2 in 3 working-age Australians have never engaged a financial adviser to help map out their retirement strategy. Of the Australians who have never sought professional advice, 75% report not being confident in being able to fund their retirement.
• By contrast, of Australians surveyed who have received professional financial advice, 44% are extremely or very confident in funding their retirement. Over 50% of Australians surveyed who use a financial adviser also engage with their super fund and are twice as likely to have a detailed plan as those who do not use a financial adviser.
• 2 in 5 working-age Australians expect to take some form of extended career break between their 20s and 50s which may include parental leave. The next generation of retirees will need to factor in the financial cost of extended career breaks, particularly the impact that time away from full-time work can have on superannuation balances and long-term retirement savings.
• 1 in 3 Australians expect to continue some form of work into retirement, with some believing they will not be able to afford retirement without additional income. Many expect to still be making mortgage repayments when they retire. Working-age Australians who intend to stop working completely once retired are more likely to have a retirement plan, have higher levels of confidence in funding their retirement, and to aim to own their home outright.

• While the average ideal retirement age for working-age Australians is around 61 years old, there is variation across the different age groups that make up this cohort. Australians aged between 18 to 34 hope to retire by 59.5, while those aged between 35 to 54 hope to retire by 61.5, and those aged between 55 to 75 and beyond want or wanted to retire by 64.9 years old.

Vanguard Australia’s Managing Director, Daniel Shrimski, says the study highlights both the opportunities and challenges facing Australians on their journey towards retirement.

“One of the key findings in this report is that having a plan is one of the most effective ways to not only achieve a successful retirement, but to alleviate the emotional burdens and anxieties that Australians can feel towards retiring,” Mr Shrimski says.

“For younger Australians in particular who are redefining the traditional path towards retirement with career breaks, parental leave and travel, having a plan is paramount to ensuring these pauses in paid work don’t impede their ability to accumulate enough superannuation and save for retirement.

“The study also provides evidence that Australians display low engagement and understanding when it comes to superannuation, with half not knowing how much they pay in annual fees, and 1 in 4 not knowing what their current superannuation balance is.

“An opportunity, and perhaps a need, therefore exists for the superannuation industry on the whole to improve member engagement, to simplify fee structures, and to support stronger retirement outcomes.”

The How Australia Retires study also contains several useful case studies covering people at different stages of life, each with varying levels of retirement confidence and different expectations regarding their financial futures.

To read the full How Australia Retires study, please click here