Retirees today tend to live longer and enjoy more active lifestyles than any previous generation of Australians. The enormous gains in quality and quantity of life, however, come with an implied financial cost that requires retirees to stretch their savings over multidecade timeframes that will include unpredictable market conditions and personal challenges.
Unfortunately, the investment strategies and products that have served so well in accruing assets via super don’t necessarily provide the kind of financial certainty Australians expect for their retirement years.
The industry’s dedication to optimising the accumulation phase has left it ill-equipped to solve a retirement income problem that can’t be outsourced to just legislators and taxpayers.
The wealth management sector has a responsibility to ensure Australians can not only fund their retirements, but also have the confidence to spend their hard-earned nest eggs so that they can lead rewarding lives after work.
The $3.5 trillion Australian retirement system has deservedly garnered world acclaim. But in some ways, the hard work on translating super into better retirement outcomes is only just beginning. The tools, products and strategies that retirees have relied on for decades need to be optimised for a future where people live longer and every dollar has to be stretched further.
The permanent threat of market volatility poses additional difficulties for Australians who rely on positive returns to maintain their nest egg as they draw down income. However, traditional retirement strategies are struggling to adequately mitigate these well-documented risks.
Financial services providers, and in particular life companies, have a responsibility to fix this retirement income dilemma. Australians look to the financial services industry not just for investment products and advice but for peace-of-mind: the peace-of-mind that comes from knowing with a degree of certainty that they can enjoy a good lifestyle in retirement without running out of money.
Our retirement strategies must adapt in line with markets and demographics trends. Retirees need more innovative solutions that provide for longevity without sacrificing financial flexibility; retirement strategies need to incorporate a more comprehensive suite of features including guaranteed lifetime income, market-linked returns, downside protection and the ability to make withdrawals.
Those industry participants that can help Australians ride out the unique risks of retirement will be in a prime position to reap the benefits of innovation.