The retirement of retirement – myth or fact?

Australian baby boomers are better prepared for retirement than their American counterparts, according to the Australian Retirement of Retirement Survey, a joint initiative of Putnam Investments Australia and PortfolioConstruction Forum.

Nevertheless, the stresses of supporting elderly parents and adult children appeared in some cases.

The Australian survey is a follow-up to similar market research undertaken by Putnam Investments in the US.

“There are many similarities, but also major differences between Australians and Americans as they plan for their retirement, with lessons to be learned for both,” noted Beth Segers, Boston-based managing director of market planning and development at Putnam, in presenting the results to delegates at the PortfolioConstruction Conference in mid-August.

Better prepared

Australians are in general doing a better job of preparing for retirement than is the case in the US, Segers noted.

Up to 75 per cent of the 177 Australian advisers surveyed were confident their clients will achieve their retirement goals.

Most Australian advisers believe their clients will retire during their 60s, although nearly 30 per cent of clients plan to retire even earlier.

In contrast to the growing number of working retirees in the US, few Australians are expected to return to the workforce once they’ve retired, Segers explained.

“A major trend in the US is that people who have retired are returning to work in order to meet their financial commitments. Our 2006 survey found that about 35 per cent of retired Americans are doing so, while 30 per cent of workers over the age of 45 are not confident they will have enough money to live comfortably through their retirement years,” Segers said.

“However, in the Australian Retirement of Retirement Survey, advisers said that less than 25 per cent of their retired clients have returned to work, and most have done so out of choice rather than necessity.”

There are several explanations for the differences, according to Segers, beginning with Australia’s mandatory superannuation program and the financial education of Australian investors.

“Most advisers in Australia say their non-retired clients are adding to their savings well beyond what is required. More than half of those polled said their clients were saving an additional 10 per cent or more of their gross income. The most frequently mentioned savings goal for clients was $20,000 per year or 20 per cent of total income, although these seem modest,” she said.

In addition, just under half of the clients of those advisers surveyed participated in the opportunity to make a one-time concessional contribution to their superannuation before July 1, 2007, and those that did frequently reported saving $50,000 or more.

And despite the high credit lifestyle of many Australians, nearly all advisers surveyed said their clients had postponed larger purchases to save for retirement.

In comparison, only 30 per cent of Americans have decided to avoid expenditure in order to save for retirement.

Family obligations

Segers said the similarities are equally intriguing.

“There are a number of trends we are experiencing now in the US that may provide lessons for Australian planners and their clients.

“The most significant of these is family obligations. American baby boomers are particularly generous when it comes to their parents. Nearly 40 per cent believe they have an obligation to help their elderly parents with day-to-day assistance and 20 per cent say that assistance should include financial support. What’s more, the majority of boomers say they expected to be helping their parents at this age.”

In contrast, the Australian Retirement of Retirement survey revealed that less than 25 per cent of Australians are providing aid to their parents or adult children.

“This may be attributable in part to reasonable costs of both university education and national health care in Australia. It seems that there is some growth in the number spending money on their grown children,” Segers noted.

“For example, there is anecdotal evidence that more adult children in Sydney are living at home.

“The stresses of supporting elderly and adult children appeared in Australia in some cases and there is reason to believe the ‘we generation’ in America may provide lessons for Australians.”

Gabriel Lacroix is client communications executive and Deirdre Keown is managing editor with brillient!, publishers of PortfolioConstruction Forum. The above is abridged from the full results of the Australian Retirement of Retirement Survey 2007 presented to the PortfolioConstruction Conference 2007 in August. For further information contact Peter Walsh, Putnam Investments Australia (02 8864 8153) or Graham Rich, PortfolioConstruction Forum (02 9247 0496). http://www.PortfolioConstruction.com.au