Gaining financial control

Ben seeks help

For Ben, lack of financial control meant a pervasive sense of fear. A worry that he’d somehow let down his partner, Roslyn, along the way.

He shared these concerns in the recent Retirement Pulse (October 2022) survey. And he was far from alone.

Only two out of five retirees currently surveyed reported feeling in control of their retirement finances.

Of the remaining respondents, about one quarter neither agreed nor disagreed that they felt in control. And a significant 30%, like Ben,  had no sense of control at all.

These sentiments are hardly a ringing endorsement of the Australian retirement income system. Whilst the ‘mechanics’ of retirement savings – mainly superannuation and the Age Pension – may be working relatively well, it cannot be concluded that individuals feel positively about this same system.

What does a lack of control look like?

It may start as a vague sense of unease. Or it might mean outright stress, anxiety, perhaps an inability to sleep well. Sometimes it’s a sense of foreboding, that something bad is about to happen. This might result in an inability to make decisions, coupled with concerns you are battling on your own against insurmountable odds. And a strong sense of irritation that no matter how many times you look at the numbers, you just can’t make them add up to a reasonable outcome.

Few of us are so naïve as to believe that we can control all external circumstances. Or, if we ever did, the ongoing Covid pandemic has shown us the futility of this type of thinking. But being on top of those aspects we can control is vital for financial peace of mind.

Ben’s relationship was actually at risk because of his financial worries. He was smart enough to seek help and shared with us the three key things he had learned from this turning point.

1. Communicate and share

In trying to be the provider, he had sidelined Roslyn from their financial situation, taking on all the decision-making and therefore all the worries. The worse he felt about their financial future, the more he had shut her out from any conversation about how they might tackle this together. In fact, money had become a taboo subject in their household. It was actually a relief when he was finally able to share his fears and work through some potential strategies with Roslyn. A problem shared did indeed become a problem halved.

2. Most of our fears are not based on facts

In Ben’s case, his major worry of running out of money and living in poverty for the last 20 years of their lives was not very likely to happen. Whilst he knew some of the main aspects of their financial situation well, he was not able to accurately project how long their joint savings and super might last, based upon the latest longevity projections. There are lot of calculations involved in likely earnings on superannuation, private savings and how this can combine with an Age Pension. In a one hour consultation with an adviser, Ben and Roslyn were assisted to use the Retirement Essentials Retirement Forecaster and input different spending patterns to see how and when an Age Pension might kick in and supplement their savings and Account Based Pension. Just viewing the different outcomes provided a sense of control, as both of them could see that they could call the shots on spending, and therefore the timing of future pension benefits.

3. There are some things we can never control

Part of Ben’s anxiety had been the significant erosion in their superannuation over the past 12 months. Watching their nest egg slide by 10% or more was like watching a slow motion car crash according to Ben. But there are a few things about this perception. Firstly, global share markets are so far outside our own locus of control, that we really cannot afford to take every upward or downward movement to heart. And if we are not currently selling the majority of our investments, then we are not crystallising any losses. Being anxious often means only seeing the negative. For instance, last week the U.S stock market had its biggest one day gain, of 5.5%, in more than two years. That’s a short term bonus and it may change again tomorrow. But it’s worth mentioning so that we remember to see both sides of the gains and losses and look over longer time periods. Despite the recent losses the Australian stock market is actually well up on where it was two years ago.  By adjusting our perceptions to manage the things we can, and let go of those we can’t, we can dramatically increase our sense of control.

And one last thing

Sharing their money management was a major turning point for both Ben and Roslyn. Learning more about the rules helped them both see opportunities to ease their financial strain. Roslyn was encouraged by the soon-to-be increased Work Bonus to take on extra part time nursing. And she suggested to Ben that some of this money could be automatically transferred to a ‘rainy day’ account, with the goal of having $2000 set aside within 12 months, for any unexpected contingencies.

Expect the unexpected is their new motto, and they both say it’s working well.

Roslyn and Ben benefitted from learning more about how long their money might last and how much they can safely spend in a tailored retirement forecast consultation. It was during this meeting they were able to see different projections on potential financial futures. After the consultation they received a strategy paper showing their current situation and an alternative approach. Whilst they are relieved to see their situation is nowhere near as dire as Ben had thought, they are planning on reviewing their progress and goals in 12 months’ time, just to ensure they are on track, and in control.

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Also this week

• The period for the proposed work bonus increase is likely to be extended
• Account Based Pension versus accumulation account