Challenges in ensuring the adequacy of retirement income centre on issues such as: increased longevity (increased life expectancy and improved health), greater expectations of retirement (access, participation and opportunity) and increased numbers approaching and entering retirement (Sheen, 2002). The need to plan for retirement is becoming increasingly important. Financial planning is only one consideration Lifestyle factors are also important (COTA, 2004). Understanding how retirement is to be spent is important in planning for retirement, particularly with the anticipated ‘retirement revolution’ with shifts in how the baby boomers will view and experience retirement compared with previous generations (McAlister, Lindenmayer & McLean, 2005). It is expected that baby boomers will expect more from retirement and shift towards enjoying life, primarily driven by such factors as: increased independence and self-reliance, greater wealth, the availability of more lifestyle choices and improved health (Quine & Carter, 2006). The adequacy of retirement incomes will be dependent on how finances, assets and retirement are planned and managed. Important considerations include: how much money is available (access to superannuation , amount of savings ), how long it will last (number of dependents , continuing work part-time , eligibility for pension, lifestyle expectations) and the availability of financial options
Table shows : Confidence was the most important issue. Confidence was more of an important issue for the younger group. Lack of confidence was found to be related to (1) the death of a partner who primarily handled the families finances, (2) the complexity of the financial materials or (3) difficulty with technology. It is common for seniors to report (particularly with superannuation) that they have enough access to information but that it is very complex and they have trouble absorbing and analysing this information. Seniors also report not being able to judge or rate competing advice and worried that some advice was not independent.
Table shows: the formal and semi-formal services provided to Australian seniors by asset managers by age group.
Table shows: Informal services provided to Australian seniors by asset managers by age group. Informal services are the most used services by seniors. The most common informal service (around 50%) is for the asset manager to pay accounts with his/her money and then be reimbursed by the senior.
Table shows: Guidelines which would improve the service of the financial planning sector were developed by seniors and industry and then ranked according to their importance to seniors and relevance to self. These are guidelines with a high discrepancy – seniors rated them as important to seniors in general but less relevant to their own situation. Respondents were: 53% aged 50–64 and 47% aged 65+ years. Within sex, however, there was a larger representation of males in the younger age bracket (55% aged 50–64). Females were evenly distributed with 50% in each age group.
These show the lowest discrepancy guidelines – seniors ranked these as being important to seniors in general as well as more relevant to themselves.
POINT 3 . In 2001 it was estimated that an employee on an average income ($35,000) with a compulsory 9% superannuation contribution over 30 years will only accumulate a retirement income of around $19,00 per year (COTA, 2002). Baby boomers in particular face a shortage of superannuation given compulsory superannuation contributions were only introduced in 1992. Many seniors report they wish they had invested earlier and put more into super. POINT 6 : Seniors report wishing they had taken more control over their superannuation. This problem commonly arises with the death of a spouse who was the primary financial manager of the family. POINT 7 : The median superannuation balance for females ($6,400) is less than half that of males ($13,400). Whilst female superannuation will increase quite dramatically over the next 20-30 years, a large proportion of women will still need to have their retirement income supplemented by the age pension (National Seniors, 2006).
Over 75% of older Australians own their own home (National Seniors, 2006). Consequently, many find themselves in an “asset rich, income poor” situation. Accessing the equity in their home to finance all or a part of retirement is an attractive option. SHANE ANSELL FROM ASIC WILL SPEAK ABOUT EQUITY RELEASE PRODUCTS AFTER MORNING TEA POINTS 1 & 2 : How much do you need? What is available to draw from your home? How long will it last? POINT 3 : If seniors do decide to take out a home equity loan it is important it has a “no negative equity” or “non-recourse” guarantee to avoid getting into a negative equity position and actually owing more than your home is worth. POINT 5 : If you move, the money you owe must be paid back in full. POINT 6 : If you want to pass the home to your children or other beneficiaries, the reverse mortgage may not be the best option as the bank will get a portion of the equity when the home is sold.
Many seniors rely on the age pension. In 2002-2003, 69% of those over 65 relied on the age pension for their main source of income (ABS, 2004). More seniors live alone and because the our aged population is increasing, the number of lone-person households will also increase (ABS, 2006). More females than males rely on age pension. In 2001, 67.1% of those on the age pension were female (COTA, 2002). Almost 125,000 divorced and separated women in Australia rely solely on the age pension to fund their retirement and have assets totalling less than $15,000 (National Seniors, 2006).
There is an emerging trend towards a greater reliance on family members and carers, to manage money and assets, rather than professionals This increases the potential risk of elder financial abuse (Setterlund, Wilson, Tilse, Robinson, & Rosenman, 2003). National Seniors policy recommends: Raising awareness in the community and professionals about what constitutes elder abuse through public education campaigns Adequate funding to train staff and professionals Development of prevention, treatment and intervention programmes that respond to the need of senior Australians More accurate recording and assessment of the causes and measurement of frequency Greater reliance on family, friends and carers for financial advice may relate to some seniors negative opinions of financial advisors. Some opinions follow that: Information is still too complex Beliefs that the information is impartial and Concerns as to whether or not the best advice has been provided (ASIC Report on Consumer Decision Making, 2004). National Seniors policy recommends: Provision of Government funding to the National Information Centre on Retirement Investments (NICRI) which provides independent, impartial information retirement investments to ensure the services are available to all seniors in both pre-retirement and retirement years The tendency to rely on family, friends and carers may also be facilitated by: Lack of confidence and ability to manage one’s own assets, Presence of unfamiliar technology, Physical restrictions, such as limited mobility and failing eyesight that limit access to information and advice (Tilse, Wilson, Setterlund & Rosenman, 2005), and Difficulty absorbing and analysing the quantity of information available (ASIC Report, 2004). National Seniors policy recommends that: A variety of sources are used in distributing information as web-based information alone is inadequate Information should provide enough detail for understanding the features and benefits of the services, user’s rights and eligibility (National Seniors, 2006).
Key Financial Issues for Older consumers: A Consumer Perspective
<ul><li>Key Financial Issues for </li></ul><ul><li>Older Consumers: </li></ul><ul><li>Consumer </li></ul><ul><li>Perspective </li></ul>
Lifestyle Issues <ul><li>The adequacy of retirement incomes to support lifestyle depends on how finances, assets and retirement are planned and managed </li></ul><ul><li>Important considerations include: </li></ul><ul><li>What lifestyle do I want and how much will it cost? </li></ul><ul><li>How much money do I have? </li></ul><ul><li>How long do I need it to last? </li></ul><ul><li>Will I work part-time? </li></ul><ul><li>Am I eligible for the age pension? </li></ul><ul><li>Do I have dependents? </li></ul>
Financial Profile of Seniors <ul><li>Australian seniors have considerable economic resources primarily in the form of: </li></ul><ul><li>(1) Equity (home ownership) </li></ul><ul><li>(2) Savings & Superannuation </li></ul>
<ul><li>Estimated net average value of various assets, per adult aged 65 years and over; 1986 and 1998 </li></ul><ul><li>Source: Harding, King & Kelly, 2001 </li></ul>
Retirement Planning <ul><li>Careful asset management and early planning is vital to ensure these resources are maximised to adequately provide for current and future lifestyle. </li></ul><ul><li>Seniors usually plan for their retirement by seeking financial advice. </li></ul><ul><li>Advice about (1) pensions, concessions and benefits, and (2) financial and legal issues are the second and third most sought after types of information by Australian seniors (COTA, 2002) </li></ul>
Why do Australian seniors seek financial information & assistance? Source: Tilse, Wilson, Setterlund & Rosenman, 2005
What types of information and assistance do Australian seniors seek? Source: Tilse, Wilson, Setterlund & Rosenman, 2005
National Seniors Policy Superannuation <ul><li>1. Simplify superannuation and providing more education </li></ul><ul><li>2. Reduce tax on superannuation to increase incentive </li></ul><ul><li>3. Invest and plan early – relying on compulsory superannuation contributions alone may not be adequate to support lifestyle </li></ul><ul><li>4. Assist mature age unemployed to get back into the workforce to avoid premature access of their superannuation </li></ul><ul><li>5. Streamline access to superannuation funds for medical expenses, palliative care, and funeral expenses </li></ul><ul><li>6. Participate in the decision making regarding your superannuation </li></ul><ul><li>7. Implement safeguards such as income splitting to protect women from divorce and devise a way of calculating the value of unpaid work (females have significantly less superannuation than males often because of disrupted work patters (e.g. child care). </li></ul>
National Seniors Policy Home Equity Conversion (Reverse Mortgage) <ul><li>Considerations for using home equity as income for retirement should include: </li></ul><ul><li>Amount of available equity in home to draw </li></ul><ul><li>Years of expected retirement </li></ul><ul><li>3. No negative equity guarantee </li></ul><ul><li>4. Complete loan costs </li></ul><ul><li>5. Possible future moves </li></ul><ul><li>6. Plans to pass home on to children </li></ul><ul><li>7. Impact on age pension </li></ul><ul><li>8. Other options </li></ul>
National Seniors Policy Age Pension <ul><li>More seniors live alone. However, the single age pension is currently only 60% of the couple’s rate and there is good evidence that this is inadequate </li></ul><ul><li>The single pension should be increased from 60% to two-thirds of the couples pension rate </li></ul><ul><li>Standard poverty lines should be established to ensure the financial well-being of all Australian seniors </li></ul>
Vulnerability to Financial Abuse <ul><li>National Seniors recommends: </li></ul><ul><li>Raising awareness through public education campaigns </li></ul><ul><li>Provision of Government funding for the National Information Centre on Retirement Investments (NICRI) </li></ul><ul><li>Use of multiple strategies to disseminate information </li></ul><ul><li>Provision of information with sufficient detail to enable understanding of: </li></ul><ul><li>- features and benefits of the service, </li></ul><ul><li>- user’s rights and, </li></ul><ul><li>- eligibility </li></ul>
References <ul><li>ABS. 2006. Year Book Australia 2006 , Cat. No. 1301.0 </li></ul><ul><li>ABS. 2004, Household Income and Income Distribution Australia 2002-2003 , Cat. </li></ul><ul><li>No. 6523.0. </li></ul><ul><li>Chant Link & Associates. 2004. A report for ASIC on consumer decision making at retirement , The Consumer Advisory Panel (ASIC), Sydney. </li></ul><ul><li>Council on the Ageing. 2004. ‘Consumers and financial literacy’. Response to Consumer and Financial Literacy Taskforce discussion paper: Australian Consumers and Money, Melbourne, July 2004. </li></ul><ul><li>Council on the Ageing. 2002. ‘Superannuation and standards of living in retirement’. Submitted to Senate Select Committee on Superannuation: Inquiry into Standards of Living in Retirement and Factors Contributing to it, Melbourne, May 2002. </li></ul><ul><li>Dolan, A., McLean, P. & Roland, D. 2005. ‘Home equity, retirement incomes and family relationships. Canberra: Department of Family and Community Services. </li></ul><ul><li>Harding, A., King, A. & Kelly, S. 2001. Trends in assets and incomes of older Australians. Presented to Council of Ageing National Congress, 13 November, old Parliament House, Canberra. Canberra: National Centre for Social and Economic Marketing. </li></ul><ul><li>McAlister, D., Lindenmayer, P. & McLean, P. 2005. Three dimensions of retirement – aspirations, expectations and outcomes. Prepared for HILDA Conference , September 29-30, 2005 , Melbourne . Canberra: Department of Family and Community Services. </li></ul>
References <ul><li>National Seniors Association. 2006. National Seniors Association National Policy Document , Brisbane: National Seniors Association. </li></ul><ul><li>Pettigrew, S., Mizerski, K. & Donovan, R. 2004. Serving seniors better: service guidelines for financial planners. Australasian Journal on Ageing , 23 (3): 139-141. </li></ul><ul><li>Quine, S., Bernard, D. & Kendig H. 2005. Understanding baby boomers’ expectations and plans their retirement: findings from a qualitative study. Australasian Journal of Ageing, 25 (3): 145-150. </li></ul><ul><li>Quine, S. & Carter, S. 2006. Australian Baby Boomers expectations and plans for their old age. Australasian Journal on Ageing , 25 (1): 3-8. </li></ul><ul><li>Rosenman, T. 1999. ‘Not just surviving, but living: policy for income in old age’. Australasian Journal on Ageing 18(4): 38-43. </li></ul><ul><li>Setterlund, D., Wilson, J., Tilse, C., Robinson, G. & Rosenman, L. 2003. Financial abuse within families: Views from family members and professionals. Presented for 8th Australian Institute of Family Studies Conference, 12-14 February 2003, Melbourne . Brisbane: University of Queensland. </li></ul><ul><li>Sheen, V. 2002. Home equity conversion: getting the policy right and getting the product right for older Australians. Presented to Changing needs, Growing Markets Conference, 18 February, Sydney . Melbourne: Council on the Ageing. </li></ul><ul><li>Tilse, C., Wilson, J., Setterlund, D. & Rosenman, L. 2005. Older people’s assets: a contested site. Australasian Journal on Ageing, 24 (Supp.): 51-56. </li></ul>