Advised retirees less concerned about cost of living: Report

As the rate of inflation and cost of living continues to remain high, many Australians are feeling anxious about their finances and the impacts this will have on their portfolios and retirement savings.

In its recent research paper, Protecting retirement income from inflation, investment management firm Challenger has found that access to financial advice services decreases retirees’ anxiety even as inflation proves to have a heightened impact on their portfolios.

Commenting on the paper’s findings, Challenger head of retirement income research, Aaron Minney, said greater access to advice would allow retirees to be more confident in their financial decisions.

“There is a clear need for some form of professional financial advice, yet we found only one in five Australians over 60 are currently receiving it,” Minney said.

“Education on retirement options was also found to be critical, with almost 80 per cent of respondents saying it would boost their happiness.”

Through financial advice, he said, retirees could shift their portfolio strategies to safeguard themselves against future inflation impacts.

“Advisers have an important role to play in enabling safe spending, empowering retirement confidence, and protecting income to last throughout their clients’ golden years,” Minney said.

“As we continue to navigate a volatile market and geopolitical landscape, retirees need a portfolio that is protected from inflation risks so that they don’t experience another cost-of-living crisis when inflation has another upturn.”

Challenger’s Retirement Happiness Index found that two in three Australians over 60 said “rising cost-of-living and affordability challenges were impacting confidence they would have enough money to retire”.

The report also revealed that almost 40 per cent of pre-retirees, unadvised Australians, and women, stated cost of living had significantly impacted their retirement happiness and view on financial security.

Although increased cost spikes historically tend to be short-term, retirees and those approaching retirement don’t have the luxury of waiting it out as they leave the accumulation phase of life and increased costs now could impact them down the line.

Minney said as people enter the retirement phase, protecting their income against future risks becomes more important to maintain a stable income.

“While equities have historically delivered a rate of return higher than inflation more than 70 per cent of the time, for positive returns this sometimes required a 16-year investment horizon,” he said.

“Retirees do not have this luxury, meaning they are at heightened risk to the impacts of inflation and need a hedge in their retirement portfolio that can protect the income.”

According to Minney, the financial services industry has a duty to ensure retirees feel secure in their financial future, regardless of current or future inflation risks.

“Today, many retirees are underspending due to the fear they will outlive retirement savings,” he said.

“We, as an industry, have a responsibility to empower confidence to spend in retirement, provide assurance that income will keep pace with inflation, and protect from the highs and lows of market-linked investments.”