Kaye Fallick - CEO Staying connected
Delivering great retirement outcomes
Shelley Wettenhall: It's my pleasure to introduce Kaye Fallick to our Third Pillar Forum. Kaye is the founder and CEO of Staying Connected, a digital community hub. Kaye has been researching and writing about retirement funding and income for 20 years, as founder and publisher of Your Life Choices website. Kaye is a regular commentator on retirement, retirement income, and baby boomer attitudes and trends. Kaye, you've really been a champion for retirees for quite some time now. Welcome, Kaye, to our forum.
Kaye Fallick: Thank you, Shelley. That's a warm welcome. And I think I am one of the few people in Australia who retained such a passion for retirement income, so maybe I'm a nerd. The things that I wanted to talk about today, staying happy at home in retirement, and this really leads into the challenges of managing your retirement income. I'm talking on a very personal level based on 20 years of serving people in retirement who are planning or entering or navigating the rules, and learning a lot about how they manage their money. Along the way, in my journey, we created a couple of calculators which help people, who are planning retirement, understand age pension entitlement, which is a huge part of most people's funding. And for those already in retirement, keeping up-to-date with eligibility and entitlements. We also, at Your Life Choices, established a very accurate benchmark of what actual retirees spend, which is called the retirement affordability index, and this ranges from 75,000 a year for self-funded people in their own home, to about 23,000, which is the total of the age pension, often for people who are renting. So, retirement isn't one thing in Australia, it's many things to many people, and there's a lot of nuance there.
Rather than talk about any kind of top-down policy view, which I think there's a lot of better placed people to talk on that topic, I want to talk directly about the personal experience of Australian retirees who are really managing a maze at the moment. What's their income? What are their expectations for the future? There's three main topics in here, the challenges in the current retirement income system, and I know Josh is an expert in this area, and we work quite hard together for the retirement income review, the home as a cornerstone for most people's retirements, and the outlook for retirees given the [03:17] ____ or post-COVID, what's ahead for us. That hopefully will give us a summary of how real people are feeling at the moment and the situation they're tackling. The challenge is how long have we got? Not that long, so let's just [03:40] ____ and summarize here, 70% of Australians on a full or part age pension and about 30% have self-funded. Those who are self-funded, there's a big range. They might be a wealthy Prime Minister living in Point Piper, or they may be perhaps a single person living in a modest home in a regional town with a large mortgage and maybe they've just lost their job.
For those who are renting about 13% to 15%, it's a pretty [04:17] ____ as if they're on the full pension, 30% plus of their income is going toward their rent. The Australian retirement income system is so complex, so to fully understand how it works and what you can do with your savings, your pension, your super, your super draw-down, your investments and your possible government entitlements, let alone credit, insurance and loans, you need a current and comprehensive knowledge of tax, superannuation law, government rules and investment strategies. Small example, I was trying to open an account for a very tiny investment in a three-month term deposit a couple of days ago, I was asked, while online opening the account, to read and agree to the product disclosure statement. It was 83 pages long and the website timed out. I think I was up to page two, I was trying to do the right thing. That's a legal requirement, but most of us aren't really equipped to follow that requirement.
It's fair to say, ordinary Australians actually possess the degree of knowledge needed to keep up-to-date with the information, which might make that vital difference between a good and a bad retirement. And the normal response which most retirees are given is, "Oh, you need an advisor." Oh, sure you do, of course you do. But here in lies a minefield. The financial business sector has been found wanting for a long time, for a decade or more. The [06:20] ____ Commission shone a spotlight on many problems. It came up with some solutions. There is an ongoing lack of trust, but in the past couple of years, maybe about a third of financial planners have left the sector. There are fewer advisors around. A financial plan is a complicated document, and quite rightly, on behalf of the advisor, it can cost from $3000 or more. So, if you've got a modest nest egg, say a median amount of super, which might be $100,000 for a male, less for a female, you may find it difficult to commit to the $3000 you're being asked to pay for advice that you don't yet know if it's going to be good enough. And this is a core conundrum in our system. We have yet to solve this problem.
Another specific example of complexity is the age pension, the rules, the changes. Three-quarters of Australians need this retirement income, but the delivery agent, Centrelink, is subpar, 43 million calls a year, time waiting, you can't get through. Robo-debt, which was applied indiscriminately to so many people. An application to the age pension, if you print it out, is 26 pages long. An application to the Commonwealth Seniors Healthcare Card is pretty complex, too. There is nothing easy about applying for this main form of income, let alone keeping up-to-date with rule changes in indexation and getting assistance to review how it works.
And this all sits ahead of two really big challenges, that today's retirees, who haven't been in super all their lives, are under-funded for their expected 20 or 30 years after they step back, or maybe even are retrenched from full-time work. They haven't had sufficient time in the super system to accumulate the kind of nest egg they need to fund their retirement, to fund their expected extra longevity. Living longer is fabulous. None of us are saying, "Hey, let me check out early." But living longer on very little is not so attractive. You know the old saying, "I've been rich. I've been poor. Let me tell you, rich is better." Rich is probably out of reach for most of us, but living a dignified and comfortable retirement is a fair aim for all of us.
Let's now think about the home as the cornerstone of most retirements. Let's assume you're one of the lucky 85% living in your own home. And if you are debt-free, your income after regular expenses, it becomes discretionary spending. That's a fabulous position to be in. It probably applies to 20% of the population. Or you may just be hanging on to your home. You may have a large mortgage and no easy way of covering that monthly interest, let alone paying down the debt. Either way, it's highly likely that you like living in your own home. You're in a neighborhood that you chose and that suits you just fine. You're connected to your community. You volunteer, you shop, eat and play locally. Your doctor, your hairdresser, your friends, maybe your family are nearby, so is the library, the town hall, the Bowls Club, the tennis court, not to mention the local pub which serves a fabulous palma. This is your life. This is what makes your home a home, and not just a house or a flat.
Shelley Wettenhall: Kaye, the figures that you mentioned from 23,000 up to 70,000 of income for retirees, that's a very wide breadth of numbers. What's the amount of money that people need to have as an income per annum to live a comfortable life in retirement?
Kaye Fallick: Well, Shelley, that just depends. The range is the range, because if we assume someone is living in a suburb like a Cremorne or a Melbourne or in a Brisbane, and they've been working and receiving an income of about 100,000, and they're living in a $2 million home, their living expenses, what they used to, it's quite high. And depending on what they've saved, or they can manage their super or manage their asset, their house, they may be able to live on 60,000. 75 is a lot of money [11:46] ____, but if we go back to the age pension numbers, we know that singles are having to live on 24,000 a year and couples on around 36,000. That's doable, but it's not desirable.
Shelley Wettenhall: Definitely.
Josh Funder: And, Kaye, I absolutely agree that we need to reduce the complexity of the system. The retirement income reviews just set out three pillars of retirement, pension, superannuation and voluntary saving, including home equity. Now, for most Australians who have worked all their lives, been really diligent savers, done their tax every year, paid off their home, and contributed to super, we can't have it that retirement's more complex, and retirement, you're losing your benefits or you're losing your confidence in your ability to navigate retirement. We've got to make it simple. How do we, with all your experience in calculators, in transparency, in reducing 68-page PDSs to be able to make sense to real retirees, how do we say that in retirement you've got three pillars, you can have confidence in your future? How do we get retirees to that situation where they can have confidence in their retirement?
Kaye Fallick: Well, Josh, there is no silver bullet and there is no one answer. The first response from me will always be, knowledge is power, and there is some general information available to all of us that we must read and we must care about. We must talk to... If we're in a super fund, we must make an appointment with the financial advisor, which generally is free for that first appointment, to get a grip on what our situation is. We must run a budget and know how much we spend. Most people don't. There's no point in getting to retirement and figuring out you spend more than you earn. That's too late by then. I think making an appointment with the Centrelink FISO is a super smart idea, using the government website tools, coming to people, like Household Capital, and saying, "Have you got any videos? Have you got any seminars? Give me information. Let me learn about this." We're doing it, staying connected, some Q&A seminars, but a whole bunch of people are doing this stuff. And I think we have to become our own retirement advocates and activists and demand information from everybody we deal with and get real about understanding it.
Josh Funder: Kaye, we're out of time, but that clarion call to make sure that we can help each retiree be the champion of their own retirement is absolutely spot on. And thank you for your contribution to the 2020 Household Capital Third Pillar Forum.
Kaye Fallick: My pleasure. And over to you to do the hard work.
Josh Funder: Thanks again, Kaye.