Australia Report

The Future of RetirementLife after work?

ContentsForeword by HSBC

Introduction

Key findings

Part 1 – The transition to retirement

Part 2 – Retirement aspirations versus reality

Part 3 – Leaving a legacy

Part 4 – Income, spending and saving in retirement

Part 5 – Practical steps towards a better retirement

4

5

6

7

9

11

14

16

3

WelcomeForeword by HSBCAt HSBC, our purpose is to help customers realise their ambitions by enabling them to manage their financial affairs today but, just as importantly, to plan for their future. It is with this in mind that I am pleased to introduce the latest report from our nine-year Future of Retirement series, a global report looking at the retirement trends of individuals around the world.

This latest report – Life after work? – reveals how the retirement landscape in Australia is continually changing. On average, Australians feel they will retire at 64, three years later than their parents did. Despite this, more than half those surveyed expect to first enter semi-retirement before retiring fully. Many are choosing to delay full retirement in order to stay alert, active and healthy in later life while others are less positive about their financial preparedness to retire.

We also take a look at Australians who have already retired. While most said retirement was providing the opportunity to further pursue their interests and hobbies, like travelling, the reality can sometimes be different with nearly 40% of Australian retirees indicating they are inadequately prepared for a comfortable retirement. This highlights that post-career goals can be put at risk by a failure to prepare adequately in early life. Encouragingly, almost three fifths of today’s retirees say their preparations for retirement were adequate.

I hope that the insights in this report, and the practical lessons shared by today’s retirees, will encourage everyone to take the necessary steps towards a more comfortable retirement.

Graham Heunis Head of Retail Banking and Wealth Management, HSBC Australia

4 The Future of Retirement Life after work?

Introduction The Future of Retirement is a world-leading independent research study into global retirement trends, commissioned by HSBC. It provides authoritative insights into the key issues associated with ageing populations and increasing life expectancy around the world.

The latest global report, Life after work?, is the ninth in the series and is based on a survey of more than 16,000 people in 15 countries conducted between July 2012 and April 2013.

While previous Future of Retirement reports have largely focused on how people plan and save for a comfortable retirement, this report looks at the process of retiring itself, and compares the real-life experiences of people in retirement with the expectations of those of working age.

This country report, based on the views of over 1,000 respondents, highlights the main findings

about living in retirement and the implications for people saving for retirement. The first part focuses on the transition from working to retirement and the prevalence of semi-retirement. The second part explores how people’s expectations of retirement compare with the reality of living in retirement, how well current retirees are prepared for their retirement, and what is the best financial advice that they have ever received. The third part takes a closer look at various forms of legacy, including loan and gift giving, the funding of others during retirement, and inheritance. The fourth part analyses what people are earning, spending and saving in retirement, and where

this money comes from. The final part outlines some practical steps that people can take to improve their financial well-being in later life.

Unless otherwise stated, the data is country-specific, figures are rounded to the nearest whole number and monetary values are expressed in local currency.

The global report, other country reports and all previous reports are available on www.hsbc.com/retirement

Since The Future of Retirement programme began in 2005, more than

worldwide have been surveyed

125,000 people

Key findings

Nearly one-in-six (15%) people who

are not fully retired expect they will

never be able to afford to retire from

all paid employment.

Of the retirees who have been

unable to achieve all their retirement

aspirations, nearly half (46%) cite

health reasons and a similar number

(45%) have less money to live

on than envisaged.

The majority of both those fully

retired (73%) and not fully retired

(66%) have never received

a significant financial gift or loan

from parents or relatives. Nearly

a third of working age people who

have received such a gift or loan,

used it to help with housing costs

(32%) and a quarter used it to

purchase a major item (24%).

Working age people expect to retire

on average at 64, three years older

than their parents, who retired

on average at 61.

Encouragingly, almost three fifths

(59%) of today’s retirees say that

their preparations for retirement

turned out to be at least adequate.

On the other hand, nearly two-fifths

(38%) did not prepare adequately

and, of these, only 54% realised

this before entering retirement.

Moreover, over half (54%) do

not think they will ever make

up this shortfall.

Inheritance expectations differ

between retirees and working

age people: more than two-thirds

(69%) of retirees expect to leave an

inheritance, whereas just half (50%)

of those not fully retired expect

to receive one. Two-thirds (65%)

of pre-retirees expecting to receive

an inheritance say it will at least

partly fund their own retirement.

One-third (34%) of 55-64 year olds

have semi-retired, and over half

(53%) of 25-34 year olds expect

to do so.

When retirees were asked about

the best financial advice they have

ever received, the most popular

answer was ‘Start saving at an early

age’ (chosen by 56% of retirees),

followed by ‘Don’t spend what you

don’t have’ and ‘Buy your own home

as soon as you can afford to’ (both

55%). A further 54% mentioned

‘Start saving a small amount regularly.’

Entering retirement was

accompanied by a fall in income

for 79% of retirees. However this

drop in income was not matched

by a similar drop in spending,

with just 54% experiencing

a fall in outgoings in retirement.

State pensions are the most

important retirement income source:

amongst retirees, 43% of income

comes from state pensions/benefits,

ahead of personal pensions (25%).

6 The Future of Retirement Life after work?

The age at which retirement is taking place is rising: on average, the main earning parent of today’s working age population retired from all paid employment at 61, whereas today’s workers say that they will not be able to afford to retire until they are 64. People would be happy to do some paid work on average until age 64, suggesting that pre-retirees do not resent working for a similar length of time to their parents. These average figures hide the fact that 15% of pre-retirees expect never to be able to afford to give up all paid employment.

Part 1

The transition to retirement

0

20

40

60

80

100

120

21% 20%27%

21%11%

26% 23%25% 33%

35%

41% 53%44%

33%

21%

4% 3%13%

34%

11%

‘Semi-retirement’ involves a reduction in working hours but a continuation of some paid employment as one approaches or reaches retirement age. Half

of those not fully retired either plan to semi-retire (41%) or are already semi-retired (11%). Moreover, whilst 34% of 55-64 year-olds are already semi-retired,

more than half (53%) of younger people (25-34 year-olds) expect to move into semi-retirement before retiring fully.

Figure 1: A third of 55 to 64 year olds are semi-retired, more than half of younger workers expect to semi-retire

Q: Do you expect to move from working full-time into semi-retirement before you retire fully? (Base: Not fully retired)

Average 25-34 year olds

35-44 year olds

45-54 year olds

55-64 year olds

Yes – I expect to move into semi-retirement

Yes – I have already moved into semi-retirement

No

Don’t know

41% expect to semi-retire, on average at age

60

7

Figure 2: The reasons for choosing semi-retirement are largely positive

Q: Why do you expect to move or why have you already moved from working full- time into semi-retirement? (Base: Not fully retired)

52%44%

38%30%

22%19%

12%

16%12%

9%7%

3%3%

0,0 0,10,2 0,3 0,4 0,5 0,6

Semi-retirement is currently not the norm amongst retirees: only 30% were given the option, and of these only two-fifths (39%) took it up.

Of those who expect to semi-retire, many have positive reasons for doing so: more than half (52%) are motivated by wanting to keep active physically and mentally, and a similar proportion (44%)

because they like working and want to continue in some capacity. However financial issues are also a concern, with nearly a third (30%) planning to semi-retire because they cannot afford to retire full time.

I would like to keep active/keep my brain alert

I like working and want to continue in some capacity

I would like an easy transition into retirement

I cannot afford to retire full time

I no longer need to work full time

I need to bridge a shortfall in retirement income

I am still/will be paying off my mortgage

I am still/will be paying off other debts

Health reasons/physical demands of my work

My household expenditure is higher than I envisagedI have/will have family members

to support past normal retirement ageOther reason

Don’t know

15% expect never to be able to afford to fully retire

8 The Future of Retirement Life after work?

Part 2

Retirement aspirations versus reality

Figure 3: Retirees are only achieving some of their retirement aspirations

Q: Many people have specific hopes and aspirations for their retirement. Which, if any, of the following have you been able to realise since retiring? (Base: Fully retired)

Q: Which, if any, of the following hopes and aspirations have you been unable to realise since retiring? (Base: Fully retired)

Retirement is the life stage when many people expect to have more free time, have no dependents to look after and achieve their later life aspirations. However, the reality of retirement does not always live up to peoples’ hopes: for example, taking frequent holidays is a key retirement aspiration for many, although 25% say they have not achieved this aspiration. More modest aspirations such as spending more time with friends and family (55%) as well as home improvements and gardening (53%) are much more likely to be realised.

Spending more time with friends and family

Frequent holidays

Home improvements/gardening

Taking more exercise/playing more sport

Extensive travel

Charity/voluntary work

Buying a new car/other expensive item

Learning a new skill/hobby

Living abroad

Learning a foreign language

Further education

Continuing to work to some extent

Writing a book

Starting a business

None of these

Don’t know

13%55%

25%55%

14%53%

17%41%

31%39%

11%35%

29%30%

14%25%

18%8%

18%5%

10%5%

23%5%

12%4%

16%1%

28%7%

6%1%

0,0 0,1 0,2 0,3 0,4 0,5 0,6

38% of retirees say that financially they have not prepared adequately or at all for a comfortable retirement

Aspiration achieved

Aspiration not achieved

9

When asked why they have not been able to realise all their later life hopes and aspirations, retirees frequently cite having less money to live on than they envisaged (45%), although just as many (46%) blame health reasons and 26% say they have less time generally than they thought they would.

Of those who have less money than envisaged to realise their aspirations, two-thirds (67%) regret that they did not save more.

Nearly two-fifths (38%) say they failed to prepare adequately (23%) or at all (15%) for a comfortable retirement. Amongst this group of retirees, 54% realised that their preparations were insufficient before retiring, and the same proportion (54%) do not think that they will ever be able to make up this shortfall. In contrast, three-fifths (59%) of working age people say that financially they are not preparing adequately or at all for a comfortable retirement.

On a more positive note, 59% of today’s retirees think that they prepared at least adequately for retirement, although it is difficult to assess whether the extra healthcare costs associated with frail old age have been fully considered. Therefore, even those who believe they are prepared for

a comfortable retirement should nevertheless regularly review their situation during retirement.

Given that a lack of adequate preparation can be an obstacle to realising retirement aspirations, we asked retirees to look back at the best financial advice they have ever received: ‘Start saving at an early age’ was the most popular piece of advice (chosen by 56%), followed by ‘Don’t spend what you don’t have’ and ‘Buy your own home as soon as you can afford to’ (55% each). A further 54% mentioned ‘Start saving a small amount regularly’.

Figure 4: Two-fifths of retirees think they did not prepare adequately or at all for a comfortable retirement

Q: Overall, financially do you think that you prepared adequately for a comfortable retirement? (Base: Fully retired)

Figure 5: ‘Start saving at an early age’ is the best financial advice retirees have ever received

Q: People sometimes say ‘If only I knew then what I know now’. Which, if any, of the following would you say is the best financial advice you have ever received? (Base: Fully retired)

23%

46%

15%

3% 13%

0,0 0,1 0,2 0,3 0,4 0,5 0,6

Start saving at an early age

Don’t spend what you don’t have

Buy your own home as soon as you can afford to

Start saving a small amount regularly

Develop a financial plan for the future

Buy only what you need

Save as much money as you canSave up to buy something that

you can’t afford at the timeInvest in property

Obtain some professional financial advice

Stick to low/lower risk savings

‘Neither a borrower nor a lender be’

Live for today rather than tomorrow

Try high/higher return investments

Other advice

Don’t know/can’t recall

7%

56%

55%

55%

54%

40%

36%

35%

32%

30%

25%

22%

21%

6%

5%

5%

More than adequately

About adequately

Not adequately

Not at all

Don’t know

56% of retirees say that ‘Start saving at an early age’ is the best financial advice they have ever received

10 Life after work?

However, receiving a significant financial gift or loan from parents is not common: only 22% of pre-retirees have received such a gift and 11% a significant loan, while fewer retirees have themselves benefitted from this type of legacy (21% receiving a gift, just 5% a loan). Gifts or loans from relatives to younger people (25-34 year olds) are a little more common: 27% have received a gift, 14% a loan.

Among working age people who have received a significant gift or loan, nearly a third (32%) used it to help with the cost of housing (rent, deposit or mortgage repayments), whilst 24% spent it on the purchase of a major item such as a car. Younger people (25-34 year olds) are more likely to receive gifts or loans to help with the costs of getting married (32%). Where gifts or loans are

received, they can be of considerable value, with a total median value of AUD24,860. However, despite the relative generosity of these gifts, 49% of working age recipients say it made no difference to their ability to save for retirement.

An important goal for many retirees is to leave a legacy to their children or other relatives, which often takes the form of a financial gift, loan or inheritance. This assistance from parents and older relatives can be very helpful to younger people in achieving important goals such as higher education or home ownership.

Figure 6: The majority of both retirees and working age people have not received a significant gift or loan

Q: Did/have your parents or other relatives ever given you a significant financial gift or loan? (Base: All respondents)

21% 22%

5%11%

73%66%

1% 2%

01020304050607080

Part 3

Leaving a legacy

Yes – gift Yes – loan No Don’t know

69% of retirees expect to leave an inheritance to their children

Fully retired

Not fully retired

11

Inheritance is another way of leaving a financial legacy to children. Surprisingly, there are far more retirees expecting to leave an inheritance (69%) than there are non-retirees expecting to receive one (50%). Only a small number (7%) of non-retirees have already received an inheritance.

Inheritances are often used to fund longer term financial goals such as retirement: of non-retirees expecting to receive an inheritance (or who have already received one), 65% expect it to at least partly fund their retirement, with 4% expecting it to completely pay for it.

The median inheritance expected by working age people is AUD169,000, which represents only a third of the amount that retirees are expecting to leave (AUD499,000). This difference can be explained in part by the fact that inheritances are often divided between more than one beneficiary.

Figure 7: More retirees expect to leave an inheritance than younger people expect to receive one

Q: Do you expect to leave an inheritance to your children? (Base: Fully retired)

Q: In total, how much do you expect to leave in inheritances to your children including the value of any property, cash, etc? (Base: Fully retired)

Q: Do you expect to receive an inheritance? (Base: Not fully retired)

Q: In total, how much have you received and/or do you expect to receive in inheritances, including the value of any property, cash, etc? (Base: Not fully retired)

Figure 8: Funding a dependent while in retirement is rare

Q: Apart from you and your partner (if applicable), who of the following are you funding or do you expect to fund to a significant extent during your retirement? (Base: Fully retired)

Q: Apart from you and your partner (if applicable), who of the following do you expect to fund to a significant extent once you are fully retired? (Base: Not fully retired)

81%56%

11%19%

6%3%

1%6%

1%2%

2%3%

1%18%

0 20 40 60 80 100

No one

My children

My grandchildren

My parents

Other dependents

Charitable causes

Don’t knowFully retired

Not fully retired

Fully retired people expecting to leave an inheritance

Proportion of people

69%

Median value

AUD169,000

Proportion of people

50%

Median value

AUD499,000

Working age people expecting to receive an inheritance

12 Life after work?

Another way that people can create a financial legacy in retirement is by funding a dependent: these are most likely to be children but could also be grandchildren or even elderly parents. Funding dependents in retirement is currently rare amongst retirees, with four-fifths (81%) not doing so. However, nearly half of working age people (44%) either expect to still be

funding dependents in retirement or are currently unsure. For example, 19% of pre-retirees expect to fund their children, and 3% expect to fund their grandchildren. These average figures hide a generational trend: 23% of 25-34 year olds expect to be funding their children in retirement, compared to just 13% of 55-64 year olds.

Fully retired

Not fully retired

18%of retirees are significantly funding other family members

13

14 Life after work?

A major consequence of retirement is that income is likely to fall considerably, compared with beforehand. More than three-quarters (79%) of retirees say that their income has fallen in retirement, with two-fifths (41%) saying that their income has fallen by more than half. Similarly, 63% of pre-retirees expect their income to be lower in retirement, although only 16% expect it to be more than 50% lower.

Perhaps surprisingly, this fall in retirement income is not always matched by a corresponding fall in outgoings: 45% of retirees say

that their spending is the same or greater than before. Where expenditure does fall, it does not do so by much: only a small

minority (9%) have reduced their outgoings by more than half.

Greater

About the same

Up to 25% lower

26-50% lower

More than 50% lower

Don’t know

A lot more

A little more

About the same

A little less

A lot less

Don’t know

Part 4

Income, spending and saving in retirement

41%

24%

3% 4%

15%

14%

22%

22%

4% 4%10%

38%

Figure 9: For many people, income in retirement is not only lower than before, but also lower than expected

Q: Thinking about your income in retirement, how does it compare with your income immediately before you retired? If you moved from full to part-time working prior to retiring, please think about your final income in full time employment.

Q: To what extent is your retirement income in line with your expectations BEFORE you retired from full time employment? (Base: Fully retired)

Retirement income level vs. pre-retirement

Retirement income level vs. expectation

Retirees Male retirees Female retirees0

20

40

60

80

100

120

5%

8%

43%

7%

7%

47%

4%

10%

9%

7%

11%

28%25%

21%

7%

5%8%3% 6%

39%

This fall in income associated with moving from full-time work into retirement is anticipated by many, with 38% earning about as much as they expected, and 14% actually earning more than expected.

Nevertheless, it is concerning that nearly half (44%) found that they are earning less than they anticipated in retirement, and even those whose retirement income is in line with their expectations

face the possibility of extra healthcare costs should they enter frail retirement.

Of those earning less than expected in retirement, the most commonly cited reason is the global economic crisis (59%), while 34% say it is due to an unexpected event or expense, and a further 32% because they did not plan sufficiently for retirement.

The research also looked at where retirement income comes from. The largest proportion of the average retiree’s income comes from state pensions and benefits (43%), with a further 25% coming from personal pensions. On average, only 5% comes from company pensions.

By contrast, among pre-retirees in Australia today, a much lower proportion of retirement income is expected to come from the state (30%). Personal pensions are also likely to account for a lower proportion (20%) and company pensions are expected to contribute an average

of 8%. In the future, a greater proportion is expected to come from cash savings and deposits (14%) and other investments (9%).

79%

saw their income fall on retiring, and

41%saw it fall by more than half

Figure 10: State and personal pensions provide the majority of retirement income

Q: What proportion of your retirement income is funded from each of the following sources? (Base: Fully retired)

Property income and assets, e.g. renting out, equity release, ‘downsizing’, sale

Other sources (inheritance, selling a business, family & friends, lottery, windfall etc)

Investments, e.g. bonds, endowments, shares, unit trusts, mutual funds

Personal pension(s)

State pension(s)/benefits

Cash savings/deposits

Company pension(s)

15

16 Life after work?

Part 5

Practical steps towards a better retirement

There is a view among retired people that they might have been too hasty in giving up paid employment. Nearly two-thirds (64%) who entered semi-retirement wished that they had stayed in full time employment longer. This regret is largely for positive reasons, with many retired people seeing work as an important means of keeping the body and mind active.

Action 1.Don’t rush into retirement

Current retirees have three different sources of retirement income on average, wisely choosing not to generate all of their income from one place. Spreading their sources of retirement income and associated risks means that not all their eggs are in one basket.

Action 2.Don’t rely on one source of retirement income

Rather than family ties loosening in future, the family will continue to be a major consideration in retirement planning, and may even grow in importance for the next generation. While many people (40%) aspire to travel extensively during their retirement, nearly half (49%) of current workers expect to have some financial responsibilities towards others even when they are themselves retired. This includes ongoing financial responsibilities for their adult children as well as supporting frail elderly parents.

Action 3.Plan your retirement with family in mind

Many working people assume that their income needs will fall once they enter retirement. Yet 52% of people in retirement have seen no reduction in their outgoings, and 17% have seen their outgoings increase. Although people are familiar with the concept of increasing life expectancy, the consequent increase in later life medical and nursing care costs may not be well understood as people are still not doing enough to prepare themselves for these potential costs.

Action 4.Be realistic about your retirement outgoings

Here are some important insights and practical actions, based on the global research findings, which may help today’s retirement savers plan a better financial future for themselves.

52%saw their outgoings stay the same or increase on retiring

© HSBC Insurance Holdings Limited 2013All rights reserved.

Excerpts from this report may be used or quoted, provided theyare accompanied by the following attribution: ‘Reproduced withpermission from The Future of Retirement, published in 2013by HSBC Insurance Holdings Limited, London.’

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