Behavioural constraint is costing retirees greatly: Allianz Retire+

The insurer found that market volatility, and inadequate savings are no longer the greatest threats to retirement outcomes, rather, it comes down to hesitancy to make the decisions retirement requires.

Allianz Retire+'s The two-chapter retirement report highlighted that many retirees can afford a comfortable retirement but are hesitant to spend and often delay critical financial decisions to achieve better retirement outcomes.

The behavioural cost is clear as the research demonstrated around 700,000 retirees leave their superannuation in accumulation after retiring, costing individuals up to $136,000, while around half of account-based pension holders withdrew only the minimum required, leading many to live more cautiously than their savings would allow.

The 'Two-Chapter Retirement' framework, developed by the insurer in the whitepaper, reveals retirees develop more uncertainty with caution, fear and complexity in the later stages of retirement.

A consistent preference for flexibility over commitment helps explain the low adoption of strategies perceived as hard-to-unwind, even when they materially improve long-term outcomes, the report said.

While traditional retirement income planning focuses on sustaining target income levels, it does not resolve retirees deeply held concerns, including outliving their retirement savings, for overly cautious and constrained spending.

"What we see is not a result of financial illiteracy or inadequate saving. These are clients who are well resourced and understand their position and yet are still reluctant to act," Allianz Retire+ chief executive David Kane said.

"The constraint is behavioural, and no amount of additional information or projections are likely to help. Instead, advisers need a fresh approach which reframes levels of commitment and stresses the exit ramps in any retirement income strategy.

"The retirement system is getting more complicated, and many people aren't aware of products that can give them guaranteed income. Combined with natural hesitation about large financial decisions, this is leaving many retirees unclear on their spending capacity and holding them back from plans that could help them enjoy the retirement they've worked hard for."

Kane said to build "genuine confidence", financial advisers must recognise that clients are not just managing finances; they are managing uncertainty about the future. However, he added longevity risk often puts advisers in a difficult place.

"Longevity is the one major retirement risk advisers can't meaningfully diversify away. While markets can be modelled and managed over time, traditional asset allocation strategies can't insure against the risk of outliving your savings," Kane said.

"Guaranteed lifetime income is not a product preference, it is a structural planning tool that helps advisers discharge their duty of care by securing essential income for life, and in doing so, gives clients the confidence to enjoy the years they can without fearing the years they can't."

Hence, Allianz Retire+ said recognising the two-chapter mindset will be essential as it shapes how clients respond to advice, perceive risk and evaluate strategies from the outset.

Viewing retirement planning through this lens allows advisers to better support clients as they balance the desire to live well today with the need to remain secure tomorrow.

"New-era retirement income solutions offer flexible access to capital and growth with downside protection not seen in older-style annuities," Kane continued.

"Advisers who can help their clients distinguish between what is genuinely irreversible and what merely feels that way will materially shift their clients' willingness to act and will ultimately improve both their clients' financial and emotional security."