On average Australians are living longer. The majority of us see this in a positive light as it allows for further life experiences and more time with friends and family. Increasing life expectancy does however come with additional financial concerns, which continue to increase as the gap between retirement age and life expectancy grows. Therefore the question of how we will fund the increasing time-frame in our retirement is becoming increasingly important, and an area where adequate planning is required.
Social questions around aged pension benefits for people who have not put enough aside for their retirement are also an issue up for debate with the increasing ageing population living longer and applying pressure to the economy. These pressures look like continuing the government’s trend of decreasing available benefits into the future.
Over the past century life expectancy has dramatically increased. As illustrated below a male’s life expectancy at birth has increased by 24 years from 55.2 in 1910 to about 80 currently. In the same manner female’s life expectancy at birth has increased by 25 years from 58.8 in 1910 to 84 currently.*
These increases are due to declining death rates at all ages, really reflecting improved living conditions, sanitation, food quality, medical advances and health education. With these improvements people are healthier and working for longer. It has also led to people ‘living young’, demonstrated by people moving out of home later in life and allocating more time to building on their education and work qualifications. It is most significantly demonstrated by people purchasing their biggest asset, their home, at an older age.
On average first home buyers are aged 31, which is six years older than first home buyers in the 1970’s. Housing prices are also forcing people to allocate approximately 45 per cent of their after-tax income towards this debt, and combined with an older purchasing age, taking the average person a great deal longer to become personally debt free. This all means that on average people are either not looking at, or are not in the position to, build up assets outside of their home.
While we all now receive compulsory superannuation as forced savings, in general it’s nowhere near enough to provide for a comfortable retirement.
The result of the current environment is that people are paying their personal debts off later and working longer while having many more years to live through retirement. The longer retirement period is amplified with the fact once you do reach retirement age (65), the life expectancy increases further. A 65 year old male is expected to live to age 84 and a female to 87. Therefore while your average retirement age has increased, the life expectancy rate has increase more.
We are now facing a 20 years plus retirement time horizon compared with a 10 year one. This means that retirees’ biggest fear is becoming financial hardship throughout their twilight years. This concern brings about the following questions for people approaching or starting retirement:
- how much I need to retire on?
- how long will my retirement capital last?
- how should I invest my retirement savings?
- what can I do to give myself the best chance of maximising what I have?
So why should increasing life expectancy be important to you? It should be because on average you will live longer, which highlights the importance of having an up-to-date financial plan.
Understanding your current position and identifying any possible strategies to pay down debts more efficiently or building assets for the future will be greatly beneficial. Maintaining your capital through retirement is getting more difficult, and what may have not seemed important for many in the past has led to a large number of elderly Australians still working not by choice, but because they have to.
It is critical to develop strategies to achieve your goals and build your retirement wealth for a happy, healthy, worry-free and enjoyable retirement.
This presentation article has been prepared by RSM Financial Services Australia Pty Ltd ABN 22 009 176 354, AFS Licence 238282. This article does not take into account your individual objectives, financial situation or needs. You should assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision.
* All data accessed from the Australian Bureau of Statistics