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Pre-Retirees Financially Aware But More Education Is Needed

20 May 2004

Pre-retirees are feeling confident in their financial knowledge, with 9 out of 10 pre-retirees claiming it is average or above average, but a Newspoll survey commissioned by the Commonwealth Bank has found there are gaps in their financial education which could cost them money.

A new Commonwealth Bank Retire Ready Survey has revealed that many pre-retirees are on the right path financially, with six out of ten people aware of how much superannuation they have accrued, six in ten planning to supplement their superannuation or the government pension with another form of investment, and 15% intending to work full-time after the age of 65.

However, while many Australians are taking responsibility for funding their retirement, the survey found 78% of pre-retirees are not aware of exactly how much retirement income they will receive from their main source1, 78% admitted to knowing little or nothing about the types and styles of investments in their superannuation, and over half (59%) have not made financial plans or seen a financial planner.

According to Geoff Austin, Executive General Manager, Mortgage and Investment Services, Commonwealth Bank, while the confidence amongst pre-retirees in their financial knowledge is encouraging, the survey clearly shows that not enough people are putting that knowledge into action.

"With such a large percentage of the Australian population about to reach retirement, the financial knowledge gap and lack of action revealed in the Retire Ready survey really are critical issues for our society," he said.

"Pre-retirees can fund a comfortable retirement, but they need to have a clear understanding of their financial position, set and achieve saving goals, diversify their investment portfolio and take ownership of their financial future."

Despite 87% of pre-retirees believing their financial knowledge was average or above average, the survey showed: there is still a need for education as almost half (46%) of the respondents do not know how much money they need to live comfortably in retirement2; one in three pre-retirees believe property will always give the highest return which is not always the case; and six in ten pre-retirees incorrectly think that a balanced portfolio is comprised of equal amounts invested in cash and shares.

Adding to the financial literacy gap is procrastination with 56% of respondents confessing to procrastinating when it comes to planning their finances for retirement and one in four of these admitting to procrastinating for more than 10 years.

As the table below demonstrates, procrastination can make a substantial difference to a retirement nest egg over a 10-year period.

Amount saved each month

Value after 10 years*

$50

$8,350

$100

$16,699

$250

$41,747

*Assumes the amount is invested at the beginning of each month for 10 years, interest rate is 6.25%p.a. There is no contribution tax or surcharge (ie personal contribution), and no fees.

"Education is the key to turning procrastination into motivation and action so pre-retirees need to read financial literature, attend seminars and seek professional advice," Mr Austin said.

"The important thing to realise is that it is never too late to start planning and that your approach to financial planning now will determine your quality of life in the future."

As part of the Bank’s national initiative to encourage pre-retirees to think about financial planning, Commonwealth Bank branches throughout Australia will stage a "Retirement Focus Day" giving local residents an opportunity to visit a Commonwealth Financial Planner for an informal, obligation-free discussion. From May 2004, and continuing through to the end of June 2004, Retirement Planning seminars will be taking place in selected locations.

Contact your local Commonwealth Bank Branch to find out if it is offering a free Retirement Planning seminar