There is often a lot of faith placed in the ability of technology – increasingly AI – to quickly and efficiently solve many financial planning problems. This is particularly the case with retirement income calculators, often considered low hanging fruit within the financial services sector. You can see the appeal of offering such DIY tools. With nearly three million people predicted to retire over the next decade, having pre-retirees do their own projections might relieve super funds of a whole lot of work and responsibility. To be fair, it’s also a way of putting the customer/fund member in the driving seat for their own retirement wellbeing, so it makes some sense. But what if these calculators aren’t totally reliable? That would be a whole other thing, wouldn’t it.
And that’s the conclusion reached in research undertaken by Super Consumers Australia (SCA) and published in September this year. In case you’re not aware of this organisation, it’s an independent, not-for-profit advocacy group on behalf of superannuation savers with low or middle incomes. SCA is partially funded through Federal Government grants and partners with the Choice organisation.
This year the SCA set out to test the usefulness of both retail and industry superannuation fund calculators. That’s because two-thirds of funds claim that this is how they plan to help members transition to retirement, by encouraging members to use calculators to understand how their savings will fund their later years.
Somewhat surprisingly, of the 50 largest funds reviewed, SCA found that only 25 offered a publicly-available calculator. Another eight provided a link directly to the calculator on the government’s Moneysmart website.
To quote directly from the SCA’s final report:
- ‘Most calculators relied on arbitrary assumptions about a person’s spending needs that resulted in a retirement income estimate that was not reasonable for the estimated retirement balance of our scenario (either too high or too low).
- Most calculators didn’t provide enough support to help people accurately calculate their spending needs.
- Most calculators didn’t account for the higher spending needs of renters, or support people who might still have a mortgage at retirement.
- Most calculators didn’t explain minimum withdrawals of superannuation.’
The conclusion drawn by SCA was that,
- ‘Based on the findings of the desktop review, fund retirement calculators cannot be counted on to always produce reasonable results.’
These findings are indeed alarming, particularly if individuals are guided by results that suggest levels of spending that are both inaccurate and potentially damaging to their quality of life as they age.
The full results of the survey can be found here.
What does this mean?
It might be easy to jump to the conclusion that the calculators on offer were faulty. It’s more than likely that the actual mechanics of the calculators worked well, but the settings offered were not realistic or sufficiently finely targeted for the user to gain an accurate picture of their financial prospects. Digital innovation in the financial sector – usually referred to as ‘fintech’ – has moved quickly and produced some very impressive tools. But calculators on their own are usually not a substitute for fintech used with an adviser’s individually tailored guidance.
What should a good calculator do?
According to SCA, a retirement calculator takes a person’s details (age, gender, current superannuation balance) and uses that information in conjunction with the calculator’s assumptions, to predict a retirement balance and an annual retirement income. This holds true at a very basic level for people with straightforward income, assets and household arrangements. But given the complexity of Centrelink and superannuation legislation, most super fund calculators couldn’t even begin to cover the wide range of conditions that affect many retirees. For instance, what of the couple who live apart, but are in a relationship? How do they record each partner’s separately owned family home? What about the person who is planning to downsize – how is this factored into their future income? What of the person who plans to spend big in retirement for the first five years and then dial right back for the next 20? How is this projected?
Which brings us back to the nuanced information that most retirees will need to feel confident that their income is both largely predictable as well as achievable.
There is an option
It has taken many years for Retirement Essentials to refine its Retirement Forecasting calculator, but we now believe it is a best in class offering.
Why?
Because it takes into account the foundational rock of retirement income, the Age Pension, and combining this with your super savings and other financial assets, it allows you to project how long your money will be able to fund your nominated spending across your full retirement journey. Additionally, it allows for cost of living increases, likely Age Pension indexation, and likely growth in your super assets. It’s a great tool and provides the accurate snapshots that most retirees really need. Those who choose to use this calculator in a guided consultation with a Retirement Essentials adviser can ‘play’ with different scenarios, by increasing or decreasing spending levels or adjusting risk settings for super investments. It’s a powerful snapshot of the way your money can last the distance and what this actually looks like.
Adviser support can increase income
The important extra ‘power’ here, of course, is the place at the table for an experienced adviser to talk you through your options as you see the different retirement income scenarios you can conceivably achieve. It helps to remember that calculations or scenarios are just one set of figures which show one possibility. By knowing rules and opportunities (such as using younger spouse strategies, restructuring your assets, or better matching investment settings to your age and stage) you can improve your outcome quite dramatically. That’s adviser power at work.
- Yes, it is disappointing if widely available super fund calculators are presenting inaccurate findings or unhelpful spending guides. But that doesn’t mean you are restricted to this type of portrayal of your retirement possibilities. If you would like to see an accurate picture of the way your savings can last the distance of your retirement journey, you can book a Retirement Forecasting consultation with either Amanda, Andrew, Nicole, or Sharon from 2 January onwards. It’s a 55-minute commitment that just could change your confidence in your financial future.
Are you one of the 17% of retirees who have used their super fund’s calculator?
Do you find using tools such as these is a way of better understanding your situation?
