Who tends to be more satisfied with their financial situations – individuals due to retire in the next 10 years, or those who retired over the past 10 years?
These are particularly critical questions as growing waves of baby boomers near retirement or have recently entered retirement.
Vanguard research analysts Anna Madamba and Stephen Utkus (director of Vanguard’s Centre for Retirement Research) have looked for answers by surveying thousands of individuals in Australia, US, UK and Canada. Their unique study, Retirement transitions in four countries, should assist many baby boomers to plan and possibly learn more about what to expect in retirement.
Significantly, financial satisfaction improved markedly upon retirement in the countries surveyed. "We ascribe at least part of this to the resolution of the psychological uncertainty that comes with navigating the transition to retirement," Madamba and Utkus comment. Recent retirees tended to be more confident and less anxious about their financial positions.
Yet many recent retirees tend to have regrets about their retirement planning – or lack of it. More than 5560 pre-retirees and recent retirees age 55-75 took part in the study – including 743 Australian pre-retirees and 703 Australian recent retirees. Those participating in the study held a minimum investable amount equivalent to the buying power (rather than exchange rate) of USD $50,000.
The broad findings were similar in the four countries although there are some differences in their retirement savings arrangements. Australia’s superannuation system is described as the "farthest along the spectrum" in regards to defined-contribution schemes rather than defined-benefit plans.
Key questions asked in the study include:
Are you satisfied with your expected financial situation in retirement or your current financial situation if already retired?
- Australian pre-retirees: High satisfaction (41 per cent), medium satisfaction (27 per cent) and low satisfaction (32 per cent).
- Australian recent retirees: High satisfaction (59 per cent), medium satisfaction (24 per cent) and low satisfaction (18 per cent).
Compared to other countries, the research shows that a "very large drop" in the percentage of Australians dissatisfied with their financial situation after retirement.
How would you describe your expected household budget position in retirement or current position if already retired?
- Australian pre-retirees: Household in strict budget (26 per cent), budget covers needs with some discretionary spending (61 per cent) and able to spend freely (13 per cent).
- Australian recent retirees: Household in strict budget (15 per cent), budget covers needs with some discretionary spending (62 per cent) and able to spend freely (23 per cent).
Do you agree that you are confident in the financial decisions you are making for retirement?
- Australian pre-retirees: Agree (57 per cent).
- Australian recent retirees: Agree (74 per cent).
Do you agree that you feel uncertain about the outlook for your financial situation in retirement?
- Australian pre-retirees: Agree (38 per cent).
- Australian recent retirees: Agree (29 per cent).
Do you agree that thinking about your financial situation in retirement makes you anxious?
- Australian pre-retirees: Agree (38 per cent).
- Australian recent retirees: Agree (22 per cent).
When "transitioning" to retirement, did you calculate the amount of money needed to finance your retirement?
- Australian pre-retirees: 53 per cent.
- Australian recent retirees: 60 per cent.
When "transitioning" to retirement, did you calculate the amount of monthly retirement income needed?
- Australian pre-retirees: 50 per cent.
- Australian recent retirees: 58 per cent.
This research paper highlights once again the financial "advice gap" among pre-retirees, with a large percentage in the surveyed countries relying on suggestions by family and friends or gaining no advice at all – let alone professional advisers.
It is clear that those who properly plan and save for retirement are obviously placing themselves in a much better position to be satisfied with their retirement finances.
And one of the key challenges for pre-retirees in their final decade before retiring is to try to reduce the anxiety about what the possible state of their finances once they retire. Again, planning and saving should help to achieve this.
