Wednesday, August 05, 2015
Retirement incomes: are we lazy because we're already good?
Attending the Financial Services Council Annual Conference for the next two days, it strikes me we're way undercooked on the retirement income discussion nationally.
It was pretty predictable we'd end up here, soon.
"Here", of course, is with people taking more money out of super than is going in. AKA decumulation. But relative to the size and importance of the issue have we really done it justice, with enough lead time, as an industry?
Vanguard's Rodney Comegys, when pushed on the panel, said "Yes" perhaps Australia it's exactly because Australia is good at retirement income saving as a nation, that we're not particularly engaged as individuals. Either as potential retirees or industry participants thinking about the future.
Somewhat surprisingly, in answer to "should we move to 15%?" Dr. Michael Keating says no.
In fact 12% could even be too much cites Keating. As one of the founders of the super system he's worth listening to. Accumulation is working well, he says. It's the decumulation piece that's now the priority. Perhaps not surprising given we've only just reached a tipping point.
Are we, as nation, able to innovate retirement income product well enough yet? Always room to improve was the diplomatic answer from Vanguard. A 'layer' of different options is needed. Once upon a time you retired with a single fund. You chose the asset mix based on your own views about investing or that advised by an advisor. Now it's not that simple, so alternatives that provide for a range of contingencies might be smarter - funds of different types, combined, perhaps, with deferred annuities, longevity insurance, mandatory payout funds - and of course a well defined spending policy that doesn't have to radically adjust to differing investment returns but where there is some flexibility to dial up and oddness based on changing circumstances.
Oh and one more thing? Good advice. Very possibly from a super fund.
When should planning for all this start? Our 30s and 40s.
A side note: while I agree, I'm also probably about 1% of the population. Where that leaves everyone else, particularly the less well off, is frightening.
How much is enough? About 70-80% of your pre-retirement income. But plan for the very good and very bad events that might alter that number.
Finally, what about a death tax on unconsumed super? Fighting my extreme ire I managed to write it down. But seriously - do we really need another way to encourage people NOT to save?