Helping Australians overcome the pervasive fear impacting their quality of life in retirement


When FORO kicked in, we saw emotion drive irrational behaviour, including a strong a sense of panic for some.

We’ve seen FORO – the Fear of Running Out – raise its head in the past couple of years. The great rush to supermarket shelves for food supplies and other essentials during the early stages of COVID comes to mind.

In most of these cases there was plenty of supply for everyone. But when FORO kicked in, we saw emotion drive irrational behaviour, including a strong a sense of panic for some.

FORO is a very real issue in retirement, and its impacts are profound. AMP’s Financial Wellness research indicates that close to 50 per cent of Australians are concerned they don’t have enough money for retirement – it’s the most common fear experienced by retirees.

With their last pay cheque approaching, many face the unsettling realisation they will soon need to live off their retirement savings. It’s a confronting situation which alters attitudes and behaviours with finances, manifesting in two main ways.

Firstly, retirees become more conservative with how they invest their savings, resulting in reduced asset growth and income streams. We know, for example, that retirees’ allocation to growth assets, such as shares, is typically up to 20 per cent lower than those people still in the accumulation phase of super[1]. And sadly, we see large volumes of funds move into cash at retirement and immediately after market downturns[1]. This self-defeating behaviour, which happened following the Global Financial Crisis and, more recently, after the Covid market shock, only serves to lock in market losses.

Secondly, FORO reduces retiree spending. The Retirement Income Review shows that the majority of retirees draw only the minimum from their account-based pension. Large numbers of retirees have also decided to take-up the reduced minimum drawdowns put in place during Covid. Amid market downturns and ‘noise’, retirees bunker down and spend as little as they can, impacting their quality of life.

The root cause of retiree FORO is a lack of knowledge and understanding, not helped by the inherent complexity of retirement products. This product complexity adds to an already confronting situation for retirees, who will be getting their heads around the age pension, while contemplating other factors, including their life expectancy. This is why Australians who are fortunate to have access to a financial adviser are less likely to be suffering from FORO.

Regulatory reform which helps make advice more accessible to everyday Australians will be important. But for retirement product providers the challenge is two-fold – we need to develop more effective and simple solutions, and we need to do a better job of helping the wider community understand them.

For example, the concept of ‘pooling’, which will form the backbone of effective retirement products in the future, needs to become a more commonly accepted and understood term.  Pooling has been used for hundreds of years, more recently in public pensions, corporate plans, insurance and communal retirement schemes, as the only efficient way to manage an individual’s risk of running out of money. Much like ‘compounding’ in the accumulation phase, pooling is almost magical in the way it generates value for retirees, allowing for less conservative investment and higher levels of income.

Another important retirement concept that requires wider appreciation is the 10-30-60 rule.  Originally put forward by renowned US retirement expert Don Ezra in the late 1980s, the concept suggests that approximately 60 cents of every dollar spent in retirement should come from investment returns earned in retirement. That is, most of the money spent in retirement should be from funds retirees don’t have when they retire.

Product providers, working with advisers, have much work to do to help shift Australia’s widely-held FORO mindset to this way of thinking.

Encouragingly, change is afoot. With the Retirement Income Review and upcoming Retirement Income Covenant, industry, government and regulators are now working collectively to improve retirement outcomes for Australians. It’s an opportunity we must seize.

By Ben Hillier, AMP’s General Manager Retirement Solutions


[1] Retirement Income Review, Final Report, November 2020

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