Retirement is harder without financial advice: Report


Australians who don't obtain financial advice in the lead up to finishing work are twice as likely to find retirement harder than anticipated compared to those who do, new research has revealed.

The Colonial First State research found that unadvised Australians are likely to fare worse than their advised counterparts in a number of different ways, including when they elect to retire and the enjoyment they get in retirement.

Just over half of those who have never received financial advice agree that they're currently enjoying their retirement, compared to three-quarters of retirees who received advice. Those who don't get advice are also half as likely to retire at the time of their choosing.

retirement harder without financial advice

Kelly Power, chief executive of Colonial First State Superannuation, says that when it comes to seeking advice, the earlier it's done the better the outcome.

"We know that if you engage early and see an advisor you typically save more for retirement through making additional contributions, allocating your assets more appropriately with an investment strategy that's optimised for your age and maximising your tax benefits and pension entitlements.

"All of that together typically leads to feeling more prepared and feeling more financially confident coming into retirement."

Despite the potential benefits, Colonial First State found that only a third of Australians would seek out retirement planning help from their superannuation fund, with many admitting that they felt embarrassed or afraid to reach out.

"Finding out how much money you need, when you need it, working out when you'll stop working - these are all very personal matters," Power says.

"In many cases people aren't comfortable talking about them openly so we do find that there's a sense of concern in asking for help or knowing where to go for help."

How much do Australians need to retire?

Another area that Colonial First State identified which highlights the information gap between advised and unadvised Australians is the money needed to retire.

Survey respondents were asked to estimate how much money they believed they would need to save for a comfortable retirement. The average figure among all respondents was $1.6 million, whereas the average for people who had never received financial advice was $2 million.

Both of these estimates are far higher than the most recent figures published by the Association of Superannuation Funds of Australia (ASFA) in its most recent Retirement Standard though.

ASFA calculates that the average Australian will currently need a lump sum of $690,000 (for a couple) or $595,000 (for a single) at the age of 67 to fund a comfortable retirement. This assumes that retirees own their own home, that all of the capital will be drawn down and that they will receive a part pension.

While Power notes that everyone's situation will be different, she says that it is beneficial for pre-retirees to know what they'll need in the way of a nest egg.

"I think it's important that everyone has a view of how much they need to live a comfortable retirement so that they can take steps early to prepare. Whether that's strategies like taking more risk on in their portfolio, or making additional top ups or spousal contributions."

"It is very personal, but being aware of education tools like Moneysmart and the calculators that we provide can be useful, as is seeking some help so that you can really start to implement the strategies to maximise your benefits in the lead up to retirement."

What type of advice is available through super?

For those who do want to seek help in regards to their retirement planning, one of the challenges is the kind of financial advice they can obtain.

Super funds can currently provide their members with free resources like calculators and webinars, as well as simple advice on topics like investment mix and voluntary contributions related to the super held with that specific fund.

For more comprehensive advice on topics like paying off debt or consolidating multiple super funds though, Australians are currently required to pay for the services of a financial advisor set up through their super fund, or externally.

Power says that Colonial First State receives thousands of calls each month from members looking for advice, many of which it is unable to provide help with under existing rules. Questions like 'How much should I put into an allocated pension?' or 'I have two super funds, should I bring them together?'.

"We can't provide answers to those questions because that falls into personal advice. You would have to go through a full advice process which has an associated cost, and in many cases these members can't afford to pay $5,000 for that advice.

"So that's really where the changes that the government's contemplating in tranche two of their package, they have to address those areas directly. So allowing super funds to be able to have conversations with members and help them navigate those complexities."

The government introduced the first tranche of legislation related to its financial advice reforms last month and is in the process of preparing its next stage of legislation that will, in part, give expand the role super funds currently have in providing their members with advice.

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Tom Watson is a senior journalist at Money magazine, and one of the hosts of the Friends With Money podcast. He's previously worked as a journalist covering everything from property and consumer banking to financial technology. Tom has a Bachelor of Communication (Journalism) from the University of Technology, Sydney.
Tom Regener
April 24, 2024 7.26pm

I abandoned the large super funds when I analysed my super performance over the period 2001 - 2009. In 2001 I received a lump sum super payment of 160,000 which my financial advisor advised I should roll into the larger super funds. The financial advisor sold his book and my portfolio changed hands 3 times. When I conducted my own review in 2009 I identified that my $160,000 had grown to $180,000, so I should have been happy with a growth of $20,000. Across the same period my financial advisors had pocketed $30,000 in fees. So they were making 50% more out of my money than what they were making for me. I took ownership, moved funds to an industry fund with less fees and invested in real estate. The key message I have to anyone on their personal superannuation is this: you are the principle stakeholder, take ownership and research your investments. I am now 68 and a self funded retiree with a mixture of superannuation and property. I will never qualify for the aged pension and I am happy about that.

Due to my personal tax situation in 2001 my financial advisor recommended investing in trees. What he described seemed too good to be true so I restricted my purchase to four lots totalling $12,000 plus GST so a total investment of $13,200. My advisor recommended borrowing $100,000 from the bank to invest in the trees but of course the risk was all mine. I stayed at the $13,200 investment and after the whole thing went broke I received a total payout after 8 years with a cheque for $19.82. Yes you read correctly, less than the value of a six pack for a financial advisors recommendation of a $13,200 investment. My message is simply this, understand that the risk with your money always lies with you and while financial advisers will come and go, it is about your retirement so be careful.

Sam P
April 27, 2024 1.27pm

Maybe the quesiton should be, of those who sought out advise, was it worthwhile?

Because in my experience, it wasn't. It became a sales execise!

In short, we've reviewed your investments and they look okay, but we think you should move everything to our platform, including Super, even though up front I said I'm not moving my Super.

And then they provided some projections, where I could have just used some online calculator and saved a fortune!

Lastly, why is everything around reitring and what to do with your money a secret