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Dec 11, 20247 min read

The ‘dignity gap’ in retirement

Updated: 2 days ago


Many of the latest financial service legislative reforms are aimed at shifting the super industry’s focus more towards retirement outcomes rather than just wealth accumulation. This suggests the value of considering how quality of life needs integrate with financial needs through retirement – something MYMAVINS have been working on for some time.


Defining the purpose of superannuation

After more than three decades since the introduction of compulsory superannuation, Australia has now officially legislated the objective of superannuation, being to

"…preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way."


This builds on the Retirement Income Review, which aims to enhance retirement outcomes by encouraging funds to play a more active role in assisting members to achieve financial security in their retirement years. Shifting focus from accumulating savings more to how they can be converted into an adequate income for a dignified retirement. After all, this is the ‘moment that matters’ - justifying the trillions of dollars being managed and advised in superannuation funds.


Members can now expect their superannuation fund to offer more personalised strategies and products that better suit their diverse retirement needs and goals.


Supporting these efforts the Government’s recent Delivering Better Financial Outcomes enables a new class of adviser aimed at making simple advice more affordable and accessible to all Australians (although not without some detractors within the financial adviser community).


Focusing more on retirement outcomes certainly feels like good news for the average Australian looking to realise a dignified retirement. However, this all must be balanced by an inconvenient truth posing the challenge ahead.


The inconvenient truth


Australians have long held a ‘grand narrative’ of property ownership underpinning their financial security. However, recent studies suggest that is and will be far from the reality of many Australians in retirement.


Vanguard predicts that an increasing share of us will be renting in retirement and the Super Members Council of Australia claim, that now more than 40% of retirees carry mortgage debt. Census data shows that pre retirees (55-64 yrs) owning their home outright have halved in the past two decades as the age of first-time home buyers continues to rise. Digital Finance Analytics found that over 3 in 4 retirees with a mortgage owe more than their super savings, which is troubling, given many Australians will use their retirement savings to pay off mortgage debt. On top of all this, recent AMP research suggest 4 in 5 Australians aged 65 years and older feel ill-prepared to navigate aged care (typically funded by property ownership).


These truths challenge assumptions underlying the ASFA Retirement Standard, a well-established reference point for superfunds to estimate retirement preparedness. Estimates critically assume that retirees own their own home - an assumption being increasingly challenged.


A recent study conducted by MYMAVINS for Australian Seniors, The Cost of Living Longer, has highlighted a sobering reality for many Australians over 50. More than 2 in 5 have experienced a moderate to severe decline in their quality of life over the past two years. The financial outlook is concerning as well: 3 in 5 fear that their retirement savings will not stretch far enough, yet 4 in 5 have not sought any professional financial assistance or support services.


This anxiety has tangible consequences. 1 in 4 feel very or extremely worried about their finances, and a similar number report that money-related stress is affecting their emotional well-being. Many find that the aged pension no longer covers even basic monthly expenses, leading to increasing financial stress. In fact, 7 in 10 fear they will not be able to live on the pension alone amid soaring inflation and interest rates, while nearly 3 in 5 are struggling to afford essential bills and basic necessities.


In an effort to cope, nearly 4 in 5 have been forced to cut back on everyday expenses. This often starts with non-essential spending, such as enjoying social activities, undermining their ability to stay socially active and connected.


Even more distressing, 1 in 5 have postponed or completely abandoned plans for medical treatment because of the cost, and nearly 3 in 5 have reduced spending on essentials needed to maintain a healthy lifestyle.


Looking ahead, the future remains uncertain. Nearly half of the respondents anticipate making further cuts to non-essential spending that bring them joy and enhance quality of life. These findings underscore the pressing need for better financial support and guidance to ensure that older Australians can navigate the later stages of life without sacrificing their well-being.


Defining ‘dignity’ in retirement and why it matters


Given the underpinning tenant of the newly defined purpose of superannuation is to achieve a ‘dignified retirement’ – what does dignity in retirement really look like?

Technically the definition of dignity is the quality of being worthy of esteem or respect, implying the ability to achieve an adequate standard of living. Accordingly, the conception of a dignified retirement is likely to vary greatly depending on our circumstances and needs.


Dignity matters and touches us all - whether it’s the values we want to uphold for older people in our society, or the reality our parents, ourselves and inevitably our children face.


So how do we define dignity in retirement and how do we best help Australians plan for and achieve a happy ending in the third act of their unique life story?


While we have traditionally focused on the financial preparedness of Australians for retirement, the now enshrined objective of super arguably speaks to broader needs and goals; that is, how Australians marshal their resources to achieve a dignified retirement.


In the real world money is but a means to an end. Most Australians are seeking financial security by accumulating wealth to achieve what’s most important to them – a good life.

 

The dignity of a good life


Adopting a whole of life perspective resonates with the average person and is a powerful tool in motivating them to take actions in their own best interests. The ability of financial services to help clients adjust trajectory towards a better quality of life is at the heart of the value they provide - and it gets to the heart of prioritising Australian’s best interests.

MYMAVINS have developed a simple Quality of Life (QOL)© measurement tool, now tested on many thousands of people in Australia and around the world in studies for the FAAA, FPSB and others. Our approach focuses on the key proven drivers that can make a demonstrable impact to Australian’s experience of a dignified retirement.


This provides a diagnostic instrument to help build self-awareness and structure meaningful interactions with Australians - earning the right to understand personal needs and experience. This becomes a powerful benchmark to anchor the guidance and value provided to them.


The key takeaway is that there are several interdependent supporting factors holding up a ‘good life’ which must all be addressed. If one is failing it weakens the others and can even lead to a collapse in our quality of life. As these factors are so dynamic, collectively we might also see these forming the integrated spokes driving us forward to achieve dignity in retirement.


Copyright MYMAVINS 2024. Please request permission for reproduction.

 

The means to an end


Retirement planning should maximise quality of life by supporting Australians in managing both their tangible financial and less tangible personal assets and liabilities. Achieving a dignified retirement is not only determined by how much money we have but rather how we invest it to meet our most important needs and goals.


Given achieving a dignified retirement is now a legislated goal, we need a mindset shift to plan more for how we invest in our health, connection, purpose, control and life satisfaction.


Australians are generally disengaged with planning for life in retirement - often missing the opportunity to start earlier to make a greater difference. They also need help to escape the nest egg mentality in retirement that negatively impacts their confidence to fully experience dignity in their third act (i.e. ‘self-insuring’ by minimising consumption to retain a sense of control).


Connecting financial outcomes more closely to broader goals of achieving a good life is a powerful motivator to engage Australians and provides a structured intuitive framework to define, measure and help achieve a dignified retirement.


Values based advice, retirement lifestyle visioning, fostering spending confidence and planning for quality of life are nothing new but it’s time for these to become the mainstay. This needs to be more than just a marketing exercise. It needs to be an authentic effort to optimise realistic retirement outcomes that make the best of what we’ve got, whatever our circumstances.


In an ongoing series of blogs, we will further unpack our practical ideas and tips to help all Australians achieve a dignified retirement. This will include how to engage, motivate and empower individuals to act in their best financial (and life) interests and how to help them navigate retirement planning, intergenerational wealth transfer and aged care needs. All the while we will explore how the financial services industry can authentically embrace and find opportunities in the latest legislative reforms.


References


Authors


Tai Rotem is a consulting partner at MYMAVINS with several decades experience in financial consumer, public health, social and behavioural change research.


Reach out to him at Tai@mymavins.com.au







Humphrey Armstrong is registered psychologist and consultant to MYMAVINS with decades of experience helping Australians navigate their transition to retirement and journey successfully through their third act.


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