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Planning financially for the elderly boom

As South Australia’s baby boomers rapidly approach old age, who will be responsible for their financial wellbeing? What can be done now to ensure the future financial wellness of both the elderly and our economy?

Aug 18, 2016, updated Aug 18, 2016

The face of the South Australian population is changing. A great deal of emphasis is placed on our cultural diversity, with institutions such as banks even providing specific services to immigrants in their own languages.

But it is not just culture that is influencing our demographics. A far more important statistic is that the number of aged dependents is increasing while the younger dependents are decreasing. In fact, it is forecast that the number of people aged over 65 in Australia will double in the next 20 years.

Take a moment to let that sink in.

Just how will our world look and operate when there are more elderly than there are income-earning workers?

It means that more people will be dependent on government to provide old-age pensions while fewer people are actually contributing to the tax pool. At the same time, changes in government income support to the aged-care service industry is likely to have a negative impact on the financial wellness of older Australians.

Earlier in the year, UniSA’s Business School conducted a survey to determine the expected impact of the increasing older population on South Australia’s aged-care service providers. A similar survey, by the same researchers, was conducted to see how the aged themselves will be affected. The goal was to find ways to help the whole industry – from providers of medical services and technology to carers, financial institutions and others – to cope with the imminent ageing boom.

From a financial point of view, three results stood out in these surveys.

The first is that aged-care service providers believe older people don’t develop retirement plans before they actually retire. But the research shows otherwise. Older people report that they did plan for their retirement, but that they didn’t understand just how much they should have saved. So their retirement plans are failing not because of a lack of planning, but because of a lack of knowledge.

Secondly, the situation is aggravated by the fact that most aged-care service providers believe their clients don’t find much value in the assistance of financial planners or advisers. Once again, that is not what older people are saying. Most of them do find financial advice valuable, but feel unsure about what is on offer or left out by the financial services industry.

Before older clients even make use of the services of a financial planner or adviser, it would help a great deal if they had a better understanding of why they need the help, how to go about finding that help, and how to make the most of the advice they will be getting.

The survey of older people revealed a third interesting fact – something alluded to earlier. Among other things, it measured the elderly consumer’s levels of financial knowledge on a basic financial product, reverse-mortgages, which could potentially help to unlock their wealth. It is relevant because a large number of retirees still live in their primary family home instead of having downsized. They fear that their government allowance will be diminished by including the proceeds from selling their primary home into the aged pension means test.

Only two-thirds of the elderly respondents knew about reverse mortgages, and most had no idea how they work. Yet financial products such as reverse-mortgages have the potential to help pensioners access the equity in their family homes without being penalised by the aged pension means test.

Here comes the disclaimer, though – reverse mortgages are not for everyone. With consumers getting older, they run a real risk of outliving the annuity, and the initial cost in fees are also very high.

So, what now? How will the results from these surveys help the industry and older South Australians?

Firstly, while aged-care service providers cannot offer financial services or advice, they can offer training. Courses in retirement planning options could be the first step in supporting older people’s financial “wellness”.

Secondly, the training programs run by financial planners can be adapted to offer advice that is more relevant to older, vulnerable customers.

The financial services industry also needs to re-think and possibly re-design its financial products specifically to cater for an older consumer base. These products should include low-risk, low-cost ways to unlock the equity in the family home.

Finally, government has a role to play, too. One way is to revisit the aged-care pension means test. Maybe older Australians shouldn’t be penalised for the profits they make when selling their primary residence.

The knock-on effects of getting retirees to downsize, especially when they move into well-planned retirement villages with medical assistance on hand, are far-reaching.

With the pace of change in the aged-care services industry, it is clear older South Australians need to be proactive about seeking the best advice and taking responsibility for their own financial futures. At the same time, proper financial education, training and planning by aged-care service providers, the financial services industry and government will go a long way to empowering people to improve and maintain their financial well-being as they age.

A senior lecturer in the School of Commerce at the University of South Australia’s Business School, Dr Braam Lowies has a special research interest in human behaviour and its influence on investment decision-making.

Topics: aged care
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