Australians are failing to save adequately for their retirement due to a lack of knowledge, interest and inconsistent financial advice, research by Bond University has found.
Bond University Actuarial Science Assistant Professor Gaurav Khemka said the report - conducted in collaboration with Dr Adam Butt of ANU, Dr Anthony Asher of UNSW and Professor Ujwal Kayande of University of Melbourne - revealed without inflation protected pensions, people needed to be making informed decisions about savings and investment or risk being unable to fund the retirement lifestyle they envision.
“Many people are ‘financially illiterate’ and don’t seek advice on retirement saving, although when they do it is often inconsistent, biased and counter-productive,” he said.
“The lack of individual responsibility and inappropriate advice could very well represent a crisis in the financial well-being of those planning to retire.”
Assistant Professor Khemka said advice was often targeted to the ‘independently wealthy’, at the expense of middle income earners.
“Financial advice for the wealthy and self-employed is tax driven, rather than focusing on how much they need to save, which is important for those who don’t have income earning assets in their retirement and need to start planning early,” he said.
“There is a distinct lack of advice and resources targeted to these middle income earners and how they can prepare for the lifestyle they want to lead in their retirement.”
Assistant Professor Khemka said as life expectancies are increasing significantly and the responsibility for post-retirement finances has increasingly been shifting from the government and employers to the individual, preparing was key.
“The life expectancy from 65, retirement age, has risen from 12 to 18 years for men and from 17 to 22 years for women, and not all of these will be ‘healthy’ years,” he said.
“The consequence is that many more people need to make the relatively complex decisions necessary to provide for themselves when they are not going to be able to work, and when state-provided benefits appear inadequate or are less than their desired standard of living.”
Assistant Professor Khemka said while advice wasn’t always consistent, those who did seek it out were much better prepared for their retirement.
“There is a dramatic improvement in the quality of retirement savings after minimal training,” he said.
“People need to consider four main areas – personal earnings, consumption, investment strategy and insurance products – and trade-off between leisure and consumption now and into the future, along with risk and return.
“Decisions also need to be made against a number of external factors including the availability of resources to create a retirement income, the current and future regulatory and tax environment, key economic variables and asset class returns, future income, current wealth, and current and future health.”
Assistant Professor Khemka is six months into a project working to create a web-based calculator that aims to improve decisions about savings and investment, before and after retirement, for all Australians.
A prototype calculator is expected to be available to financial advisors later this year, with the complete calculator to be developed over the next four years.