Retirees under-prepared for unexpected knocks Graham Heunis, head of wealth management at HSBC in Sydney. THE spectre of the global financial crisis continues to cast its shadow over Australia, with local retirees the hardest hit among their international peer group, according to HSBC's latest Future of Retirement report. The research, based on responses from 16,000 people in 15 countries, including 1000 here, indicates that 79 per cent of Australian retirees reported an income drop on retiring, with 41 per cent seeing it fall by half. This is nearly double the global average (21 per cent) and ahead of other Western nations, including the US (16 per cent) and Britain (24 per cent). Of the Australian retirees suffering a fall in income, 59 per cent blamed it on the GFC, nearly double the global average of 34 per cent and more than any other country. To a lesser extent, Australian retirees also attributed falls in income to unexpected events or expenses, such as children moving back home or health-related expenses (34 per cent), as well as insufficient planning (32 per cent). HSBC Australia's head of retail banking and wealth management, Graham Heunis, said the continuing impact of the GFC for many Australian retirees underlined the importance of preparing for retirement, but also highlighted how much the retirement landscape was changing. Australians have felt the GFC acutely and for a prolonged period because of the strong links between our pension and superannuation systems and equity markets, which saw more than 50 per cent falls following the crisis. Unfortunately, this means many Australians' retirement plans have been disrupted by the GFC. It is a painful reminder of how we can all be blindsided by circumstances outside of our control and why it is important to provide a savings buffer for unforeseen events," he said. Nonetheless, Mr Heunis said that while some Australian retirees were caught out by the GFC, HSBC's global report showed that inadequate retirement planning was a global phenomenon. It is important to note that nearly 60 per cent of today's retirees say their preparations have been adequate, so I think we should acknowledge that many Australians have been diligent in keeping an eye to the future. However, it is also fair to say that many Australians have applied a 'she'll be right' attitude towards their retirement and it is not until they are close to retiring or worse, when they have actually retired, that many realise they're going to fall short. This is supported by the survey, which found 44 per cent of Australian retirees were surprised by the drop in their income after retirement. As a result, many have had to place a reverse thrust on their retirement plans or even be forced to try and re-enter the workforce. I think a lot of Australians don't fully consider that life is not a straight line, that there are bumps along the way, whether it be health, kids moving back home, or events outside your control like the financial crisis," Mr Heunis said. A further problem highlighted by the report was that many retirees' grand aspirations for later life failed to materialise. While a solid majority managed to see more of friends and family (see graph), dreams like living abroad, undertaking further education and writing a book were achieved by far fewer people than expected. And while 23 per cent of people retiring expected to be able to keep working in some way, only 5 per cent actually achieved it. The report found that one in six working-age Australians believe they will never be in a financial position to fully retire, which is above the global average of 12 per cent and slightly lower than the US and Britain (18 per cent and 19 per cent respectively). Additionally, 59 per cent of working Australians still feel they are inadequately preparing for retirement. It is alarming to see many Australians facing the prospect of never being able to fully retire. This is also compounded by a large majority of Australians who realise they are currently undershooting their retirement savings. Clearly, the earlier you start planning, the better off you will be in later life. This was supported by the survey which showed that among the retirees, 60 per cent, the highest proportion, said the most important financial advice they would impart is to start saving at an early age. However, it is also important to note that retirement planning will always evolve as your needs or aspirations do. For example, 69 per cent of Australians expect to leave an inheritance to their children. "Ensuring this happens will require careful management, even in retirement," Mr Heunis said. Reflecting the changing landscape, the report found Australians were also embracing semi-retirement in greater numbers - reducing their working hours but remaining in the workforce. On average, Australians expect to fully retire at 64 (compared with the global average of 59), three years later than the age their parents retired. But the survey found that 52 per cent of working Australians (42 per cent globally) expect to move into semi-retirement before full retirement compared with only 30 per cent of current Australian retirees who went into semi-retirement first. This figure increases to 57 per cent among 25 to 34-year-olds. Of those moving to semi-retirement, 52 per cent are motivated by staying mentally and physically active, with 30 per cent saying they are financially unable to fully retire. "While a move to semi-retirement is a financial imperative for some, particularly among baby boomers affected by the GFC, it is encouraging to see most are actually choosing to stay in the workplace to remain physically active and alert," concluded Mr Heunis.