The global quest for certainty

When it comes to the quest for reliable income in retirement, global retirement markets share many similarities. Drawing on the US experience, where innovative solutions have shaped retirement planning for over a decade, can offer Australia crucial perspectives as it develops its own strategies.

In this article Jasmine Jirele, President and CEO of Allianz Life and CEO of Allianz Australia Life Insurance Limited, Adrian Stewart, examine the retirement sentiment in their respective countries and how Australia can learn from the US.

No matter where we live, it appears that our desire to retire comfortably and with financial confidence is universal.

Both Australian and American retirees face a common challenge: ensuring a reliable income throughout retirement. Research from both countries reveals that retirees are seeking solutions that offer increased confidence and peace of mind. They desire more than just a stable income; they want assurance that their retirement savings will adequately cover their living expenses for decades to come.

Recent research from the Allianz Life 2024 Annual Retirement Study found that 63% of Americans worry more about running out of money than death. And it pointed to factors such as high inflation, social security and taxes as big drivers of these fears.

Similarly, in Australia, research conducted in collaboration with bestselling author and retirement educator Bec Wilson provides a local context to the evolving retirement landscape. The study, titled ‘How do we make retirements more epic?’ revealed that 71% considered having income for life to be their most important financial priority, followed by investment growth (50%), protection against market volatility (48%) and inflation (36%). Furthermore, 43% are looking for income products that can be used in conjunction with the Age Pension.

In the US, addressing this need has resulted in the widespread adoption of guaranteed lifetime income solutions, which provide a steady stream of income regardless of market conditions. In Australia, there’s a growing demand for products that can deliver predictable income, reflecting a broader trend towards securing financial stability in retirement.

‘Retirees are looking for more certainty, and they’re looking to make sure that there’s some way that their basic needs and expenses can be met in a really volatile environment,’ says Jasmine Jirele.

Diverse approaches to financial advice

Both the US and Australia recognise the importance of financial advice. In the US, financial advice is sought through various channels, including employer-sponsored plans, independent financial advisers, and digital tools. The trend indicates that retirees who utilise financial advice and employ multiple strategies to manage risk tend to achieve better outcomes.

Australia mirrors this trend, with a focus on improving the retirement outcomes of all Australians by providing greater education, access, choice and flexibility when it comes to retirement planning. It is also worth recognising that not everyone will be able to access financial advice, so the role of guidance enabled by education and technology is critical to meeting the needs of a broader range of retirees. This approach aligns with the US experience, where technology has played a crucial role in helping retirees make informed decisions.

Education is key to driving change

In Australia, there’s an emergence of innovative retirement income products. However, research shows that take up of annuities has been low (with only around 6 per cent* of pension-phase accounts invested in annuities) – usually because annuities remain largely misunderstood. 

Our Epic Retirement research revealed that while almost 80 percent of survey respondents are aware of annuities, only 17% would consider them as a source of retirement income. However, 59% indicated they would consider them with better education, suggesting that this evolving product category could become more appealing than the annuities of the past.

With the majority of respondents having heard of lifetime income streams but not knowing much about them, there is a clear opportunity for education and discussion.

‘The message is clear: consumers have articulated their priorities for retirement income,’ says Adrian Stewart. ‘They want to ensure they have sufficient income and access to capital to fund the years ahead. They want the certainty of guaranteed lifetime income, investment growth and protection against market volatility.’

Long-term performance and global experience

‘Over the past decade, we’ve seen guaranteed lifetime income solutions demonstrate resilience through various economic conditions, consistently meeting their objectives and often outperforming market alternatives. This long-term success provides a valuable benchmark for assessing the potential of similar solutions in Australia,’ said Jirele.

Allianz Guaranteed Income for Life (AGILE) is an example of a new-era retirement income stream that was modelled from Allianz Life in the US and now available in Australia. It’s unique in that it straddles both the accumulation and pension phases, blending a growth investment with an annuity. It offers downside protection in the growth phase to protect the client’s capital and then generates a predictable income for the rest of their life while still providing flexibility to cater to sudden expenses.

‘The US experience is hugely valuable for the Australian marketplace, and we’re in a position to leverage that,’ says Stewart.

Lessons and opportunities

Global insights offer valuable lessons for Australia as it continues to innovate in retirement income planning. The focus on member experience, simplicity, technology, and flexibility are key factors to consider as Australia builds its retirement income market. By adapting successful strategies from around the world and continuing to innovate, Australia can develop a more robust and responsive retirement income system that meets the evolving needs of retirees. Embracing these lessons will be crucial in ensuring a secure financial future for all Australians.

‘We as an industry have been a beneficiary of this wonderful superannuation regime, which is the envy of the world, but we need to work harder to help Australians convert this into a retirement income that is going to support them for life,’ says Stewart.

‘It’s a great dilemma that many Australians aren’t aware of until they start thinking about retirement; and for some that is too late, so this fear of running out of money becomes real. It’s a moral imperative that we need to solve.’

As Australia navigates the complexities of its retirement landscape, the experiences and innovations from global markets provide a valuable roadmap. By leveraging these insights, Australia can enhance its retirement income solutions, ensuring that retirees enjoy financial stability and peace of mind. The journey towards a secure retirement is a shared global challenge, and through collaboration and innovation, Australia can lead the way in creating a sustainable and resilient retirement system.

Adapted from the article published in the inaugural October 2024 edition of Retirement Magazine.