Retirement Expectations – Wishful Thinking vs Reality

What do you want to do when you retire? No matter how far off you are from calling it a day and leaving the workforce, you probably have some sort of vision for your leisurely, enjoyable retirement years. But how much money do you need to put aside to realise your dream? Recent research suggests that many Australians are way off the mark in terms of understanding what retirement looks like, and therefore have an inflated (and generally unrealistic) target for their lifestyle and the income required.

Retirement Income – Misaligned Expectations

According to research conducted by Vanguard, the retirement income expectations of working-age Australians are exceptionally high, setting a new standard. Their latest “How Australia Retires,” report reveals that non-retired individuals in the workforce desire an average annual income of $99,000 in today’s dollar terms. In contrast, those who have already retired typically have more modest aspirations, aiming for an average income of $68,000 per year. Vanguard suggests several theoretical factors influencing these sky-high expectations. One possibility is that working-age Australians, with more time to plan for retirement, are setting higher post-retirement income targets, thus establishing a new retirement standard. Additionally, there may be a disconnect between the expectations of working-age Australians and the reality of retirement.

The report highlights that tomorrow’s retirees may struggle to accurately predict their retirement needs due to a lack of understanding regarding retirees’ generally lower expenses. Retirement seems distant to working-age Australians, making it difficult for them to envision their retirement lifestyle and accurately estimate their future income and expenses. Consequently, they tend to overestimate their retirement spending needs. Vanguard also speculates that topical issues, such as soaring rental costs, may influence the expectations of younger working Australians who do not own their own homes.

Other Retirement Expectation Misalignments

Vanguard’s report also found that working-age Australians do not agree on an “ideal” retirement age. younger individuals are less realistic about ideal retirement ages. The survey reveals that those aged between 18 and 34 hope to retire at an average age of 59.5, while those aged 35 to 54 aim for retirement at 61.5. On the other hand, individuals aged 55 and above view ideal retirement age as 64.9 years old. As retirement approaches, working-age Australians may become more realistic about their retirement age, in contrast to younger individuals who may have idealistic notions about retiring early or have not yet seriously considered retirement planning. Differing expectations of retirement lifestyles and preferred activities could be another factor contributing to the disparity in expectations. Working-age Australians prioritise travel (if financially feasible), while current retirees prioritise spending time on hobbies.

The Reality of a “Comfortable” Retirement Lifestyle

According to the March Quarter 2023 retirement standard published by The Association of Superannuation Funds of Australia (ASFA), the minimum annual cost of a “comfortable” retirement is $50,004 for singles and $70,482 for couples aged 65-84, assuming they own their own home and are in relatively good health. ASFA breaks down a comfortable lifestyle into four distinct categories:

  • Daily Essentials: Housing; Groceries; Transport; Clothing/Footwear
  • Health & Fitness: Private, comprehensive health insurance; medical appointments including doctor/specialist visits; exercise expenses (e.g. aquarobics, yoga, bowls, dance classes)
  • Social Engagement: Movies; streaming services; club membership
  • Connecting with Family: Computer/laptop; internet; mobile phone plan; interstate flights once annually; international flights once every seven years

Naturally, retirees till apportion their expenses in different ways, and some have expenditure outside of these. But particularly as it relates to the topic of retirement expectations, people can define what constitutes a “comfortable” retirement in very different ways.

The Indisputable Value of Financial Planning

Despite the benefits of financial advice, Vanguard’s report reveals that financial advisers are not the primary source of professional guidance for working-age Australians. Superannuation funds are the preferred option for financial advice, while individuals in the workforce are more likely to seek information from podcasts, blogs, and social influencers.

Having a financial plan significantly increases the chances of a successful retirement and alleviates the emotional burdens and anxieties associated with retirement. This is particularly relevant for younger Australians who face challenges in accessing affordable advice and may disrupt their retirement savings through career breaks, parental leave, and travel “gap years.”

You shouldn’t wait until you’re ready to retire before engaging an adviser to undertake retirement planning. Strategies and plans should be put into place years in advance, so you put yourself in the best position to live the retirement lifestyle you envision for yourself. Call the Priority team today on 02 9415 1611, or get in touch via our website.

Read the report: Vanguard – How Australia Retires

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