Home / Retirement / Retirement confidence has nothing to do with markets, but cost of living does

Retirement confidence has nothing to do with markets, but cost of living does

Markets may have outperformed in 2023 after a dour 2022, but it wasn't enough to lift confidence in retirement as cost of living pressures continued to cloud the financial future of many Australians.
Retirement

New data shows that when it comes to having confidence in retirement outcomes, immediate cost of living concerns including the rate of inflation and mortgage prices have much more bearing than the vicissitudes of investment markets.

According to the 2023 State Street Global Advisors Global Retirement Reality Report, which surveyed over 4,000 individuals participating in workplace-sponsored savings plans (or the market equivalent) in Canada, Australia, Ireland, the UK and the US, a bumper year in market performance did not translate into retirement confidence.

Markets made significant gains in domestic and global equities in 2023 (the survey was conducted in August, 2023), compared to a dour set of returns in 2022 (see chart below), which State Street assumed would result in a rise in retirement confidence – at least for Australians.

  • “Despite this dramatic reversal in markets, many of the measures of confidence appeared to have weakened rather than strengthened among our Australian respondents,” the report states.

    When asked if they believe they will have saved enough to retire by the time they stop working only 20 per cent of respondents replied in the affirmative in 2023, down from 25 per cent in 2022. In 2023 14 per cent of respondents also said they “can’t imagine” being financially secure at retirement, up from 10 per cent in 2022.

    Rather than market movements, a staggering 73 per cent of Australian respondents identified “inflation and the cost of living crisis” as the factor most negatively affecting their retirement confidence. “Mortgage debt/rent and housing costs” was the next most significant factor (38 per cent) followed by “medical expenses” (35 per cent).

    “These three were selected more often than factors like having spare money for savings, the complexity of the superannuation and pension system and lack of trust in super,” State Street noted. “Clearly confidence in retirement is a function of much more than simple investment returns.”

    The annual State Street report came up with a number of other significant findings, including that Australians largely support the Retirement Income Covenant’s mandate that superannuation trustees help their members maximise retirement income, manage risks and maintain flexibility.

    Australians are also coming around on annuities, State Street believes, although progress is slow and Treasury has remarked that the take-up of products “remains low”.

    “In the 2023 survey, we saw encouraging signs that annuities may have turned the corner in Australia,” State Street advised.

    “Acceptance of some of the stereotypical negative statements about annuities has softened since 2022. It isn’t clear whether this softening is due to higher interest rates, or education or some other factor, but it does augur well for trustees looking to include longevity products in holistic retirement solutions.”

    Staff Writer




    Print Article

    Related
    Wealth transfer on hold: Boomers reluctant to down-size, content to wait

    The data is a reminder that while this enormous shift of wealth is imminent, it won’t happen before its time. According to AMP, more education about the options available might instigate the process.

    Tahn Sharpe | 5th Jun 2024 | More
    Not all retirees impacted equally by cost of living surges: ABS

    The cost of living increased across all indexes in the March 2024 quarter. But while employee households carried the brunt of higher prices, self-funded retirees emerged relatively unscathed according to the Australian Bureau of Statistics.

    Staff Writer | 13th May 2024 | More
    Is the F.I.R.E. retirement plan foolproof or foolhardy?

    Diligence and frugality can lead to wonderful retirement outcomes, writes Alteris Financial Group senior adviser Jaxon King. But if the journey to retirement is bleak, it could sap the joy out of reaching the destination.

    Jaxon King | 2nd Nov 2023 | More
    Popular
  • Popular posts: