How to deal with the expected wave of retirees rolling in over the next decade

A silver tsunami is on its way as 3.6 million older Australians will over the next 10 years transition away from full-time work.

Cutting back hours or finishing work should be an exciting time of life yet it’s hardly the topic of choice at dinner parties or barbecues.

A silver tsunami is coming for Australia. Over the next 10 years it’s predicted a wave of 3.6 million older Australians will transition away from full-time work. To put this into perspective, there are currently 4.1 million retirees in Australia, which on conservative estimates will nearly double over the next decade.

This enormous change will impact our broader economy, health system, and, of course, the superannuation industry, and I am not convinced the sector is entirely prepared.

The silver tsunami is a challenge for our nation, which Australian Retirement Trust sees as a monstrous opportunity.

We will need bold action on retirement product offerings, how we treat parental leave, financial education and advice, savings levels and participation rates, taxation and much more. All of this needs to be part of a wider conversation, but there are things we can focus on today.

The first step is improving engagement. We want people talking to their mum, dad, partner or neighbour about their super.

One in seven Australians is on the verge of one of the most exciting times of their lives – cutting back hours or finishing work – and yet it’s so rarely spoken about, hardly the topic of choice at dinner parties or barbecues. But why?

Why is it many people would prefer a trip to the dentist or marriage counselling before discussing their superannuation and retirement? For most, ‘‘retirement’’ could be a third of our lives, and something we dream about from the moment we start work.

Will we retire by the beach? Spend our golden years exploring foreign cities? Or go full grey nomad? Not to mention more time with the grandkids. Maybe all the above! And yet, how we achieve this is often only thought about when it’s too late.

Australian Retirement Trust research shows more than 20 per cent of Australians haven’t checked their super account in the past year. It also shows close to a third of Australians are forced into retirement unexpectedly due to poor health or job loss.

A lack of involvement and unexpected circumstances, a less than ideal combination, often results in retirees pushing back their transition away from full-time work or when they move their super to the income payment phase. People avoid decisions through fear of making poor ­choices.

This is understandable – choosing a retirement income drawdown approach and investment strategy for 30 years or more can be a daunting task and the steps needed to move super from accumulation phase to income payment phase add to the friction for people.

Sadly though, it means many Australians are missing out on tax-free investment earnings offered by retirement products.

This is why we believe all super funds should provide a simple default retirement income solution. It’s what we recommended to Treasury in February, as the federal government consulted with industry on improving settings for the retirement phase of super.

As a starting point, this could be as simple as a preselected investment strategy, drawdown approach, and payment frequency (eg fortnightly) to simplify the process of commencing a retirement income stream for members.

Over time, more tailored default retirement income solutions could be developed for members, based on their situation. This is not a replacement for quality financial advice, but the reality is not all retirees access advice, which is something else we want to ­improve.

Outside of the family home, superannuation is generally the single biggest asset most Australians own, putting us ahead of many of our global peers.

The average 35-44-year-old worker in Britain has £30,000 (about $58,000) in their ‘‘pension pot’’. The average retirement savings for an American worker of the same age is $US45,000 (about $69,000), while the average balance of an ART member in this age bracket is $113,000.

Now I’m willing to bet if I was to put $113,000 cash in front of most people, they would sit up and take note.

They would start looking at investment options, the returns of term deposits and high-interest savings accounts, compared with ETFs, shares and investment properties (the only part of finance Australians seem to love talking about).

Their involvement in decision making to optimise such an amount would be high.

So, why is it throughout the course of their working lives most Australians tend to lose sight of how they can materialise the dreams they have for their retirement?

And why don’t they see superannuation as their own money? Our Australian Retirement Trust research shows financial literacy is still a challenge – only 37 per cent of Australians say they understand how to manage investments within super, the rest would probably struggle to understand what a government bond is and how it works.

For this group, making detailed decisions about investment strategy would be equivalent to me trying to change the engine of my car, an impossible task without the right knowledge and tools.

It’s why, as part of the Quality of Advice Review, we’ve been advocating for the ability to provide our members a broader range of education, guidance and advice.

Let’s get people talking about and more involved in their super.

There’s work to do but having a default retirement setting and greater scope for quality advice are two steps in the right direction to helping more Australians retire well with confidence.

We want our members and all Australians to awaken their super and live their dream retirement.

David Anderson is CEO of the Australian Retirement Trust.