In a recently released white paper, Russell Investments said analysis of the financial goals and financial circumstances of more than 8,000 Australian superannuation members indicates that 64 per cent of the participants were projected to fall short of their desired income by more than 10 per cent.
“Our analysis also uncovers a second, poorly understood issue. The potential for overfunding — unintentionally saving more than needed,” it stated.
“Over one in 10 participants were projected to exceed their goal by more than 10 per cent, sacrificing spending now to achieve a future retirement income well above what they want.”
Based on the analysis, around 32 per cent were either on track or slightly above in terms of their projected retirement outcomes.
The research found that optimising contributions at the personal level can play a significant role in closing the retirement gap.
The research demonstrated that if individuals contributed 5 per cent of their salary in additional contributions when tracking behind, the analysis shows the proportion of members on track to their goal would increase by more than half.
The analysis also indicated that around one in five participants has little understanding of super and how their retirement savings were tracking.
“When asked whether respondents were aiming for a specific retirement goal, 21 per cent indicated they didn’t know or hadn’t thought about it,” the white paper said.
“This proportion of disengaged respondents was similar when asked whether their current super balance was ahead of, on track to, or behind where it needs to be to fund their retirement, with 16 per cent of respondents indicating they didn’t know or were unsure.”
The white paper also indicated that increasing growth allocations earlier in life, and more precisely reducing growth allocations when approaching retirement, can increase the projected retirement income for more than two out of every three people, while simultaneously reducing the impact of a significant market event later in life.
“In addition, by incorporating the individual’s desired income, asset allocation can be further optimised to reduce the chance of falling short. For example, if an investor is on track to their retirement income goal, but not above, a more defensive growth allocation can help ensure they don’t fall below their target income,” it said.
In line with the release of the research, Russell Investments has also launched a goals-based superannuation solution which uses proprietary algorithms to make it possible for every Australian to access a tailored investment strategy based on their unique circumstances and retirement income goals.
Russell Investments managing director, Australia, Jodie Hampshire said that while the Australian retirement system is considered among the best in the world, policymakers continue to debate how to improve the Australian system.
“Our analysis shows that optimising asset allocations and contributions at the personal level can form a substantial part of the solution,” Ms Hampshire said.
The GoalTracker solution factors in up to 10 individual data points, including a person’s age, super balance, salary plus capital market forecasts, to determine how each member is tracking towards their retirement income goal and to set up a customised asset allocation to ensure they have the best chance of reaching that goal.
