On this page
Most people know good advice can be helpful, but with household budgets under pressure from the soaring cost of living, it can be a tough ask to shell out your hard-earned dollars on advice.
In the long run, however, not getting professional help can cost you more than you spend on it.
That’s particularly the case when it comes to planning your retirement, with research regularly showing real, measurable benefits from talking to an expert – both in terms of how you manage your retirement savings and your emotional wellbeing.
Anxiety about retirement
New research shows millions of Aussies are fearful they will not have enough savings for their retirement, while many pre-retirees feel they have left their retirement planning too late.
The 2022 Financial Wellness research by AMP found almost half of Australian workers don’t know how much they will have or need at retirement and two in three people aged over 65 are concerned about having too much debt. Against a backdrop of rising inflation and volatile investment markets, half the general population aged 50 to 59 are concerned higher living costs will affect their retirement lifestyle.
According to AMP, this anxiety is heightened by a lack of understanding of their finances and Australia’s complex retirement income system. Making decisions about how to combine and manage your retirement plans, savings, housing needs and future expenditure is complex and most of us need someone to provide guidance through the maze.
As the report by Challenger and National Seniors Australia (NSA), The Evolution of Retirement Income: A 2022 Snapshot noted: “Retirees and pre-retirees urgently need better access to financial advice and user-friendly tools that account for the complexity of intersections between the retirement income system and people’s housing, health, age care and employment circumstances”.
Who gets financial advice about retirement?
When you’re busy working, retirement dreams might be a pleasant escape, but it seems few people actually create a plan to get there or think much about how they will manage their finances in retirement.
As the NSA/Challenger report noted, “most retirees do not seek financial advice, despite or perhaps because of the complex nature of retirement finances and the systems that support them”.
Anxiety about seeking financial advice can be due to concern about sharing personal information, feeling judged for having a lower income or for poor record-keeping. Concern about having a lack of financial knowledge or feeling overwhelmed by financial jargon can also be an issue.
A 2022 Transforming Financial ‘Advice’ Report by global research firm Core Data found retirement income planning was the key financial matter in the lives of 47% of Australians aged 60 to 69, followed by managing super issues (39%).
Within this age group, however, only 25% received financial advice from an adviser, with 19% receiving financial advice from a super fund. The figures for those aged 70 and over were similar, with only 28% receiving financial advice from an adviser.
Interestingly, only 58% of those aged 60 to 69 felt relaxed and in control when it comes to making decisions about money and financial affairs.
Your finances: How much can advice help?
When it comes to your retirement finances, several research studies have investigated whether there are measurable benefits from getting professional advice from a financial planner.
According to ongoing research by Morningstar in the US, a good planner can increase your wealth – or save you from losing – about 2%. This added value comes from:
- Creating an adaptable withdrawal strategy
- Allocating more to guaranteed income products
- Utilising your total wealth to build your investment portfolio.
The additional 2% value also comes from your adviser helping you make good decisions in relation to your savings and remaining invested during market volatility. Advice about tax-effective strategies and estate planning also add value.
Vanguard has also estimated the so-called ‘Adviser’s Alpha’ added to a client’s investment return. Its research indicates good financial advice adds approximately 3% in returns (after fees and taxes).
The additional return comes from more than just good investment selection and asset allocation; it’s also derived from behavioural coaching, portfolio construction advice, cost-effective implementation and regular rebalancing of your portfolio.
Added value from financial advice
| Source | Annual value-add |
|---|---|
| Financial planning | >50 bps (0.5%) |
| Asset selection and allocation | 52 bps (0.52%) |
| Investment selection | |
| Active management: | 67 bps (0.67%) |
| Passive management: | 61 bps (0.61%) |
| Systemic rebalancing | 30 bps (0.31%) |
| Tax management | 100 bps (1%) |
| Total | Around 3% |
Source: Envestnet, Morningstar and Vanguard
Research by CPA Australia also concludes professional advice covering accounting, tax, financial, superannuation and business issues has significant benefits. Its Value of Advice Research Report found 81.2% of consumers believed there were benefits to their financial security from receiving professional financial advice.
The report estimated the average value of properly implemented professional advice for retirees aged 65 and above averaged up to 35.7% of an individual’s total personal income per year.
Is professional financial advice worth the money?
According to retirees receiving financial advice, it seems the answer is ‘yes’.
A survey conducted by MYMAVINS for Fidelity International asked retirees what advice they would give others facing retirement. While having a positive and optimistic outlook and investing in your health were key pieces of advice current retirees wanted to share, 28% also noted the importance of getting expert advice.
“Quality financial advice improves clients’ decisions today and delivers tangible benefits in the future. Clients with an active relationship with a financial planner are wealthier, spend more and expose themselves to less risk,” the study noted.
It found retirees with an active relationship with a financial planner suffer from less financial stress, are more competent when dealing with financial matters, feel more confident about the future and are more financially resilient. Importantly, they feel excited by the future and more in control, plus being happier with their lives overall.
This is echoed in the Conexus/Core Data study which found people who got advice have better outcomes. They are more likely than the general population to feel relaxed and in control when making decisions about money (58% versus 42%) and to have set out their financial goals and plans for achieving them (50% versus 25%).
Your emotional wellbeing: How much can advice help?
Studies indicate personal finance is one of the main sources of stress for Australians of all ages.
The Financial Wellness report found nearly a million workers are now severely financially distressed. This anxiety has also spread to older Australians, with 59% of older people (aged 65+) being worried about their debt levels, while 26% feel guilty about their personal finances and worried about their financial security (26%).
The report found over the past two years people approaching retirement are increasingly looking to reduce their spending. Among retirees, 44% have significantly cut their spending, with 34% reviewing their utility costs and trying to get a better deal.
So, how valuable is advice when it comes to non-financial benefits?
For most people, being financially secure brings peace of mind and a positive effect on their emotional wellbeing, particularly when it comes to retirement.
A recent study for the Financial Planning Association (FPA) found having an adviser can drastically improve the likelihood you will be satisfied with your lifestyle in retirement. It found the top 5 key benefits people receive from working with a financial advisers are:
- Greater confidence in having a comfortable retirement (47%)
- Improved financial wellbeing (40%)
- Improved financial decision-making (37%)
- Improved money management (33%)
- Improved general wellbeing (peace of mind, health and social aspects) (32%).
The FPA study found clear non-financial benefits from seeking professional advice, with at least two in five people receiving advice stating the advice had benefitted their family life and mental health. They rated their overall life satisfaction at 7.3 (out of 10), which is higher than the 6.4 rating given by those who are unadvised.
In addition, two-thirds (67%) of advised early retirees believe they are living a comfortable or lavish retirement lifestyle, compared to only a third (33%) who were unadvised. In addition, there is more confidence about having enough money for the rest of their retirement among advised retirees (63%) than those who are unadvised (40%). However, these findings could reflect the fact (or the perception) that advice is unaffordable for less wealthy individuals.
Reducing the retirement blues
It seems pre-retirement advice or training programs do more than just make you feel prepared. They also help you adjust to your new lifestyle and to feel more positive about it.
In Michael Longhurst’s book Enjoying Retirement he points out people who seek advice or training before they retire experience significantly lower levels of depression in retirement than those who received none.
Longhurst’s research also found receiving pre-retirement education was associated with significantly more positive attitudes to life and greater retirement satisfaction.
Leave a comment
You must be a SuperGuide member and logged in to add a comment or question.