Four learnings from Vanguard's How Australia Retires report. Hint: planning is key

Vanguard’s report shows 54% of working-age Aussies estimate super constitutes only half or less of overall investment balance
Younger Aussies redefining expectations of work with two out of five working-age Australians intending to take an extended career break
Survey respondents with a detailed retirement plan six times more confident about retirement savings than those without a plan

How are you planning on funding your retirement? Do you make extra super contributions or have an investment property?

If you’re a Stockhead reader it’s likely the stockmarket may constitute part of your retirement plan.

Vanguard has released its inaugural How Australia Retires report, which surveyed over 1,800 working and retired Australians aged 18 and up. The report found a significant percentage of working-age Australians view superannuation as a vital component of their retirement plan.

But some individuals show a lack of interest in super and are diversifying their investments to include other options for their retirement nest egg.

The report revealed 54% of working-age Aussies estimate that their super balance constitutes only half or less of their overall investment balance, with the rest consisting of non-super investments such as share market securities, general savings, investment property, and their primary residence.

Vanguard head of superannuation Shannon Nutter told Stockhead the goal of the report was to discover what are the opportunities and challenges facing Australians today as they think about and move into retirement.

“The focus is how can we take these learnings and drive meaningful innovation in super and in retirement more broadly and we hope that others in the industry will do that as well,” she said.

The research focused on a several areas including:

How are younger Australians redefining work and the path towards retirement?
How do retirement expectations differ from reality?
How confident are people about living the way they want in retirement?
What drives people to be more confident or less confident?
What is the role of superannuation in retirement savings?

So what were the four key findings of the report?

1. Younger Australians redefine path towards retirement

A range of social and economic factors, including the rise of technology and the recent Covid-19 pandemic, have impacted the way we choose to live, work and retire.

The research revealed that younger Aussies are redefining their expectations of work and retirement. In contrast to previous generations, working-age individuals are more inclined to deviate from the traditional retirement pathway.

WORTH READING: How the average Aussie wage earner can build a $3 million superannuation nest egg

The study found that two out of five working-age Australians intend to take an extended break from work. Nutter said they may opt for parental leave, one or multiple career breaks, undertake further studies, or a gradual approach to retirement.

The study found half of those under the age of 35 expect to take parental leave, including 39% of men.

“I think we’ve all seen parental leave increase in companies over the years but that is a really interesting number,” Nutter said.

She said the number of younger people intending on a career break is different from the older Australians surveyed, who were more likely to have worked full-time from their 20s until their 60s.

“They are going to have to factor in the impacts of those breaks on their investment and for their retirement whether that is in super or other long-term investments,” Nutter said.

“Being able to think about retirement early and developing a plan of how they are going to achieve that with those desired breaks is really going to enable them live the kind of life that they expect.”

2. Young people start off optimistic

Nutter said the report showed young people start off quite optimistic.

“Maybe that is youth but they think they’ll be able to retire earlier, live the kind of life they want and don’t necessarily think super will be the majority of their retirement savings,” she said.

“They think they’ll have investment property or other long-term investments.”

Indeed the report showed one out of every four working-age Aussies consider an investment property as a significant component of their financial strategy.

However, the survey revealed that Australians who have already retired are more likely to depend on the age pension as part of their retirement plan, and only 1 in 10 in this group regard investment property as an asset.

3. Not many Aussies make extra contributions

Although 50% of working-age Australians consider super to be crucial for their retirement savings, they anticipate relying on it less than current retirees do.

Moreover, less than half of them make additional contributions to their superannuation to maximise their future returns.

The lack of involvement some Australians have with their superannuation is further demonstrated by one out of every four individuals surveyed being uncertain about their current super balance, and one out of every two unsure about the amount they pay in super fees.

There’s also a lack of interaction between members and their super fund. Half of the working-age Australians surveyed had not contacted their fund within the last 12 months, while three out of every four retired Australians had not been in touch within the last six months.

4. Planning key to confidence for retirement income

Nutter said the report dug deep to understand what factors played a role in retirement savings confidence and found planning was key.

“Planning overall is absolutely critical with those who have a detailed retirement plan six times more confident than those without a plan,” she said.

Nutter said it’s easy to assume confidence comes with age, experience or higher income during career progression but that is not what the survey observed.

She said high confidence was seen across demographics among those with a financial plan for retirement.

“Having a plan was linked to taking actions like having a budget, prioritising savings whether in super or other long-term investments, living beneath one’s means or having done some work either by themselves or with a financial advisor to really understand what are the kinds of things I need to do to live the life I want?”

“Those who had a plan, worked with a financial advisor were far more likely to be engaged with their super and so I think that is intuitive. If they have a plan they’re far more likely to sit down and think about their income, spending levels, where their investments are today or what they may need to do to bolster them going forward.

“The planning, insight and link to confidence is really interesting because it crossed demographics.”

She said there was also a link between those who sought out professional advice and their level of confidence with a retirement plan.

Key takeaway – Plan and engage more in super

Nutter said the key takeaway is working age Australians across demographics should really be thinking about developing a retirement plan.

“Taking some actions to move towards your goals even if they’re smaller actions like saving a little more, spending less than you earn sound basic but all add up to increased confidence,” she said.

“Engage in your super, make sure you know what you are paying in fees.”

Nutter said whether putting money in super or outside of super, positive actions people take today can set them up in the future.