THE RIGHT MIX

Greater retirement confidence and better outcomes will come from improved access to financial advice and stronger public engagement but achieving that is a complex formula.

- Lachlan Colquhoun writes.

There are many myths about retirement, and one of the most common is that people will run out of money.

Even as Australians live longer and many spend up to three decades of their lives retired, the Retirement Income Review found the typical retiree dies with around 90% of their starting super balance intact.

As a recent AMP whitepaper Retire with Confidence says, this may sound like something to celebrate, but it means that many retirees live in a 'lifestyle deficit' where they forgo a standard of living and experiences which could have made their retirement years happier and more fulfilling.

Another myth is that spending rises, or at least doesn't decline, in retirement.

“Most retirees can afford to spend more in retirement and especially early in retirement when health and medical conditions are less likely to slow them down,” the whitepaper reported.

And yet most retirees don't, and that is because so many of them lack confidence in their retirement finances.

Generation X, those born between 1965 and 1980, will retire with the largest superannuation balances of any generation so far, but recent research from Natixis Investment Managers shows that 48% of this group are still worried about running out of money.

AMP research shows significant demographic cohorts struggling with their financial confidence, from middle- and lower-income Australians to single mothers and divorcees.

Where only 40% of people earning under $45,000 have confidence about retirement, the figure rises to 75% for those on $190,000. Only 20% of single mothers in their 40s have any confidence.

Introducing 'FORO'

There is even an acronym for this phenomenon: 'FORO' or the fear of running out.

Optimum Pensions head of engagement Stephen Huppert says that as well as FORO resulting in unspent balances, it can result in people “making poor choices and lead to many retirees being overly conservative spenders.”