The financial services industry has let advisers down.

For the last 30 years, the focus has been on producing wealth accumulation solutions to cater for all types of client risk appetites.  Solutions for the decumulation phase haven’t been given as much attention. Retirement solutions have been limited by a one size fits all approach, instead of tailoring to individuals’ specific needs. With over five million baby boomers, the need has never been greater for new and innovative solutions for Australian pre-retirees and retirees. 

A study in the US revealed that 63% of respondents across generations fear running out of money in retirement more than death¹. This may also be the case in Australia, where more than half of Australian retirees are spending less than the Age Pension each year². These findings raise the question: do we need to re-think retirement income solutions altogether?

“A study in the US revealed that 63% of respondents across generations fear running out of money in retirement
more than death”
¹

At the forefront of many retirees’ minds is the type of risk they want to mitigate. Unlike many people in the accumulation phase, retirees’ key metric of risk isn’t volatility.  It’s actually the fear of running out of money.  The importance of financial security becomes far greater as we age, and this in turn can create financial anxiety.

An individual’s journey in retirement has its own set of challenges that can be overcome with the help of our industry. For instance, forecasting the future cost of household expenses and healthcare can be overwhelming in the context of an unknown timeframe.  There’s also anxiety around making the ‘right’ financial decisions during retirement.  Medication, sensory changes, and physical and mental changes can all affect the efficiency of how information is processed³.  How do we, as an industry, help retirees overcome financial anxiety and help them sleep at night? How do we ensure our communications are optimal at all times, especially when there’s a shift in cognitive efficiency? 

Retirement planning requires a more holistic approach than might have been required during the accumulation years.  As an industry we need to better understand the fears surrounding retirement, retiree definitions of risk and what behavioural or psychological factors might be influencing their attitudes to money.

We can and must do better. The retirement journey can be lived and enjoyed in many ways.  Retirees deserve more than cookie-cutter solutions to invest their hard-earned money. The industry needs to give financial advisers retirement solutions that deliver security and income, with the flexibility and longevity to help clients adapt to and evolve with life’s ups and downs.

¹2017 Allianz Generations Ahead Study – Quick Facts #1, May 2017.
² Retirement Expectations and Spending Profiles, Milliman, 2018.
³ Emory Alzheimer’s disease Research Centre, Cognitive Skills & Normal Aging Fact Sheet.