Changes needed as Australians choose to retire later

New research by the Association of Superannuation Funds of Australia (ASFA) has revealed that a “substantial minority” of Australians are choosing to remain in the workforce beyond the retirement age.

According to a survey of 1,500 Australian adults representative of the broader population, 33 per cent of those ages between 65 and 69, and 8 per cent of those aged 70 and over, are either employed or actively seeking employment.

Notably, of those aged 65 and over who are still working, the report found that one in four (around 25 per cent) do so for non-financial reasons.

Speaking with ifa, financial planner and chartered accountant with Financial Edge Group, Martin McGrath, explained that many of his own clients are choosing to take a more gradual approach to working due to gaining a sense of purpose or enjoyment from work.

“A lot of people are transitioning. I think my mind of retirement 10 years ago was you work full-time until a certain date, then you just stop, whereas I'm finding a lot of my clients will go from five days to four days to three. Maybe a career change, rather than just being a complete stop,” McGrath said.

“So I think the products and the strategies and the Centrelink implications need to be more favourable to that. The work bonus thing that's coming into place has helped, but I think there's still more of a ways to go in that regard.”

Fuelled by fear

On the other hand, the report found that around 14 per cent of those who continue to work beyond the retirement age don’t think they will be able to retire, largely due to financial reasons, however, more than 20 per cent of workers are retiring prior to 60, some of whom are not doing so by choice.

“While the decisions that shape retirement pathways certainly reflect financial circumstances, these are not the only considerations for many older Australians,” the report said.

“Some people delay retirement and remain in the workforce to maintain social connections. Others retire earlier than they would like due to ill health or in order to care for family members – with the latter disproportionately impacting women.”

McGrath said that some those who continue to work for financial reasons are likely struggling with a fear of not having enough to retire, regardless of whether or not that is actually the case.

“There is a social side, but I think there is still that financial fear, even if the spreadsheet or the software proves different, I think there's still some internal fear from clients,” he said.

“As best as we do in our business and as financial advisers to show clients, ‘hey, you can retire. You can afford to do this’. I think there is still a big fear.

“A client last week, they’ve got over a million dollars. They’ve got too much for the age pension, but they still, ‘well, I don't know if I can retire or not. Are we going to have enough? What about aged care in the future? What about medical bills? What about cost of living?’ Which I think is the value of an adviser, to do that, to show you.”

Unadvised Australians lacking retirement confidence

For Australians who aren’t receiving financial advice due to the high cost, McGrath argued that there needs to be a low-cost option available to help them understand their financial situation

“The third category is those unadvised who don't know if they can retire or not … maybe that's where some of these new retirement products come into it, some of that certainty, because I think there are probably a lot of people who financially could retire, but they just don't have that confidence and or haven't had that meeting with an adviser,” he said.

Speaking on the report findings, ASFA chief executive Mary Delahunty said the report highlights the absolute need for Australians to be able to access financial advice leading up to retirement.

“This research demonstrates yet again the clear need for Australians to have low- or no-cost financial advice as they transition retirement,” Delahunty said.

“Having your options clearly laid out by a financial adviser from your super fund, as the Quality of Advice Review final report recommends, could only benefit the hundreds of thousands of Australians deciding how best to manage their finances at this important time.

“Our research shows beyond question that advice reform is vital to ensuring Australia’s super system remains a global leader.”

Delahunty explained that as retirement trends have changed in Australia, regulations around it also need to change to meet the new norm.

“This research shows us the days of working to customary retirement age and then putting your feet up are long gone,” she said.

“The rules around superannuation need to change to reflect this. Currently, Australians who’ve hit preservation age can’t draw down on their super, and top up the same account. Being forced to have two or more accounts – one account to take money from and one to put money into – doesn’t make sense with our modern, fluid approaches to retirement.”

Similarly, the report said: “These results point to the importance of policy settings to accommodate differences in preferences among older Australians, and to help boost the superannuation savings of those on lower incomes.”