by Rodney Lester, Adviser Ratings
It goes without saying that preparing for retirement is one hot topic when it comes to an individual’s personal finances. Rather than being hard to come by, coverage of stories and think pieces telling us how much we will need to save for retirement, how underprepared we are for retirement and the like are an almost daily offering in many media personal finance pages. How, if at all, are advisers tackling this issue?
The much quoted figure, if you want to believe it, is that you need a million dollars or more to draw on once you have retired. Australian’s have the 4th largest pot of Superannuation savings in the world, over 2.2 Trillion dollars – yet many question whether this is enough for our current population to retire on, particularly with high levels of personal debt carried by a much of the population.
It’s Up To The Individual
While these broad, overall numbers make great headlines, any financial planner worth their salt will tell you the amount a person “needs” to retire on will depend overwhelmingly on that individual's needs and desires – and how they want to live in retirement. You may need much more than a million if you plan on spending 6 months of the year on 5-star globetrotting holidays, but if that’s not your thing, you will be able to live comfortably on much less.
These types of figures are a good starting point, in comparing their examples and costings, with what an individual might want. However, for the individual, that’s all they’re really good for – the comparative starting point.
The Value of Advice
Financial planning is the art of identifying a client’s needs, goals and desires, then charting a course in order to attain them. The strategies put in place to get there may be as different as the goals themselves. The key point, is a financial adviser will be able to help tailor a financial solution for the individual or family, based on their needs and desires.
When it comes to what types of advice are being delivered to Australians, advisers will be well aware of what they themselves give advice on, and what their clients are seeking. Whether an individual adviser’s specific experience is replicated across the industry, is harder to ascertain.
The question could be asked: “Is the advice industry on target for preparing Australians to meet their retirement needs?”, or put another way, “are those seeking financial advice getting help with their retirement plans?”
Is The Advice Industry On Target?
Data sourced by Adviser Ratings, suggests a resounding "yes" to both of these questions. Taking for granted that most advisers are "worth their salt", and can effectively help their clients identify and plan to reach their goals, for those seeking financial advice, organising retirement plans is a key concern.
Analysis of over 10,000 client reviews indicates that 85% of individuals seek advice on one or more aspects of their retirement. Whether clients are coming to advisers asking for particular retirement advice, or the advisers are steering their clients toward retirement planning, may be a moot point, but analysis shows that the vast majority of advice clients are receiving advice about planning for their retirement. The four categories that clients have indicated their advisers have helped them with, under the banner of "retirement", fall into these areas:
- Building Super
- Preparing for Retirement
- Self-Managed Super Funds
- Estate Planning
Analysing the data further (in particular the advice sought by different age groups) reveals what some may find to be unexpected results.
The five age cohorts analysed are those under 35, 36-45, 46-55, 56-65 and 65+.
Data reveals a solid consistency across each of the age cohorts, when it comes to seeking advice in relation to retirement. In fact, “Building Super” is the number one category of advice (of 18 overall categories) that is most sought after, across all age cohorts. As Figure 1. illustrates, the percentage of people getting advice on this area in the youngest and oldest cohorts is 62% and 63% respectively. In the three middle cohorts, 66% of people receive advice about building their super.
Fig 1. Percentage of Advice Clients Receiving Advice on Building Superannuation
When all of the categories related to planning for retirement are taken into account, again, there is a solid consistency across age cohorts, as shown in Figure 2. Analysis shows that 20-25% of all advice clients get advice about self-managed super funds. Interestingly, less than 4% of advice clients seek advice around “Aged Care”.
Fig 2. Percentage of Advice Clients Receiving Advice Related to Retirement
Given the fact that Australia has a large and growing ageing population, this may indicate this particular area is under-serviced by advisers and that further expertise should be committed to this area, to help assist this growing market.
Almost everyone (96%) who sees a financial adviser, feels that their adviser explained how their advice would help their individual circumstances and needs. Crucially, this metric is independent of any nominated monetary value. Rather, advisers are helping people plan to satisfy their financial needs based on the individual’s personal goals. It’s not about (nor should it be) a particular nominal value that will satisfy every person who seeks advice – but how much you as an individual (or family unit) will need to live in retirement, as you choose to. This is the real value of advice. Helping determine an individual’s goals and implementing strategies to prioritise and achieve them.
Rather than using fear to frighten people into action because they will need “X” amount of savings in retirement, the industry can promote the positive story of how advisers can tailor solutions for individuals and families, to help them live the retirement they choose.
You don’t need a million dollars to retire comfortably, you just need a good adviser.
A version of this article first appeared in Professional Planner