Home / Economics / Stubborn inflation prompting Aussies to move goalposts on retirement

Stubborn inflation prompting Aussies to move goalposts on retirement

A recent global retirement survey by investment manager MFS shows nearly 60 per cent of Australians are rethinking how they'll retire because of inflation worries – a bigger hit to retirement confidence than any other recent economic shock, including the COVID-19 pandemic.

Inflation concerns have prompted nearly six in 10 Australians to rethink their retirement plans over the past year, with most now believing they need to save more than they’d previously planned, new research shows. That’s a greater hit to confidence than from any of the other shocks of recent years, including the COVID-19 pandemic.

The finding that 59 per cent of Australians are changing retirement plans because of inflation is in line with global investors, but with $3.5 trillion of Australia’s wealth tied up in the superannuation sector, the potential consequences of this shift loom large, according to the 2023 MFS Global Retirement Survey.

Of those rethinking their retirement plans, 74 per cent now feel the need to save more, while 61 per cent said they would need to work longer and 54 per cent are switching to a more conservative investment approach, MFS said. And 40 per cent now think they won’t be able to retire at all.

  • In fact, only 26 per cent of the 1,000 respondents to the survey were confident they’ll be able to retire at the time and age they prefer to, according to the investment manager. The age Australians would hope to retire remains 66 years; most envision a gradual transition, with just 15 per cent planning a “hard stop” retirement.

    “The sentiment around a gradual transition rather than a hard stop can have implications for workforce management,” noted Jeri Savage, head of defined contribution research at MFS. “For example, policies that allow employees to gradually wind down before retirement. There might be an opportunity for better workforce transition for both the retiree and the new person coming in.”

    Joshua Barton, MFS’ managing director and head of Australia and New Zealand, also pointed out that the superannuation industry is on the cusp of the Great Wealth Transfer, a “historic transition from savings to accumulation to income drawdown” that will change the face of Australia’s super system over the next decade-plus.

    “We must embrace the regulatory and legislative relief changes geared towards delivering better financial outcomes that can help insulate retirees, current and future, from market-cycle stress,” Barton said.

    According to Savage, the survey shows investors have been negatively affected by market events and their concerns about the inflationary environment.

    “There’s a general consensus that, because of the last few years, people now feel that they will need to work longer than they planned, save more than they planned, and some even feel that they may not be able to retiree at all,” she said, noting that these answers were consistent across the other three countries surveyed – the US, Canada and the UK.

    “Not surprisingly… participants and members feel negatively about the recent market events, and that translates into a decline in overall retirement confidence,” Savage added.

    And according to Barton, the survey “highlights the role that effective advice can play in helping investors meet their retirement objectives”. The results show that, unlike in the US and Canada where use of financial advisers is strong, Australians are more likely to rely on their employer or super fund for advice.

    “We need to continue to open pathways to advice across the superannuation system, including through superannuation funds and employers and new technologies to support Australia’s sophisticated yet smaller advice market.”

    4 key challenges will define 2024, with room for some optimism: AMP

    The financial services giant’s top economists look at the risks that dominated markets this year and how they’re likely to evolve in 2024, warning that the new year could be a “rougher and more constrained ride” compared with 2023.

    Lisa Uhlman | 20th Dec 2023 | More
    Gap between rich and poor widens as wealth hits record high

    While Australian household wealth is hitting new records, research shows much of it is held by just a few people, with the richest 5 per cent of Australians seeing their assets grow in value by 86 per cent over the last 20 years.

    Nicki Bourlioufas | 4th Oct 2023 | More
    Have interest rates peaked? As consumer spending weakens, economists think so

    Australian consumers are showing real signs the largest and longest rate hiking cycle in 30 years is starting to bite. It might be the proof the RBA needs to see that its fight against inflation is working, adding further weight to the theory that rate rises are behind us.

    Nicki Bourlioufas | 13th Sep 2023 | More