Has Australia got the magic formula for retirement income happiness? Not yet

Powerbrokers have difficulty agreeing on the objectives of compulsory superannuation* but if the objective was to force Aussies to accept personal responsibility for creating an adequate retirement income, it’s worked. But, damn, we’re not all that happy about it, and a new formula for retirement happiness indicates that might be a perfectly reasonable feeling.

State Street Global Advisers (SSGA) recently surveyed more than 9,400 people in eight countries – those working, those near retirement and those recently retired, as well as longer-standing retirees – for their views on retirement prep. The Global Retirement Reality Report notes that Aussies stand out in their acceptance of personal responsibility for ensuring their retirement income was sufficient; expectations the state will pitch in to help fund our old age are much lower than in, for example, some European countries.

This goes even for Australians well in to their retirement years, who’ve no doubt given up hoping anyone will remember that the Age Pension was once a promise of care in one’s later year in return for a tax increase during working life.

You might think this collective shouldering of responsibility would have us feeling empowered with a sense of purpose, of ‘we know what we’ve gotta do, and we’re gonna do it’, but there’s the catch. We know what we’ve got to do but we’re far from confident we can do it, as SSGA’s survey also shows.

More than a quarter of those workers within five years of retirement said they won’t get even close to the saving what they believe they need for retirement. Almost half of workers surveyed overall in Australia told SSGA that they weren’t optimistic about their financial situation in retirement.

Of course, opinion leaders can’t agree on whether Australians are wrong to feel pessimistic about retirement incomes. Paul Keating, our former treasurer, responsible for introducing compulsory super in 1992, says they’re spot on. The influential Grattan Institute says not.

But the SSGA reports indicates that Aussies aren’t illogical in having accepted responsibility for their retirement income, while also worrying about not being able to create a sufficient one – and thus not feeling particularly happy about the situation.

The report provides what it calls a ‘happiness formula’ (the collection of variables that make for greater retirement happiness). The three elements comprise that formula are: trust in the systems that provide an apparatus for and govern the savings system, ownership of the individuals who participate in retirement savings and preparedness as expressed by individuals’ confidence of retirement readiness.

Well, we’ve sure got the second of the three! But the first is lacking given the multiple changes made to the super system by governments since its introduction, not to mention the repeated postponement of the most recently promised increased super guarantee, while the survey shows the final element also appears to be in short supply. (It should be said that while Australians score less strongly on the trust and preparedness factors, the mood was worse in most other countries surveyed.)

So, what’s the answer? What would give you greater trust in the super system, and more confidence that you’re well prepared, or on the way to well prepared, to fund or continuing funding your retirement – and thus happier about the status quo?

Bryan Ashenden, a financial educator at BT Financial Group, took a look at the SSGA report and came up with his own interpretation of the formula, which, in short, is: accept there will be regular changes to the super system and make you understand them, get engaged by understanding your super fund’s performance and how you can improve your outcomes, and come to grips with what’s likely to be a realistic retirement income outcome for you and adjust either your lifestyle or your investments to match.

Agree or not, Ashenden has a point: this super thing ain’t going away, so the smartest – and perhaps only – move is to make the best of it.

*The Superannuation (Objective) Bill 2016, designed to enshrine in legislation the objective of superannuation, was introduced by the government to the House of Representatives on November 9, 2016, and got a first reading in the Senate on November 23 of that month. Its second reading was moved and doesn’t appear to have been revisited although we’d be happy to hear on the contrary.

What do you think about retirement income preparedness? Are you happy with the preparations you’ve made or are making, or do feel the superannuation system still working for you?