The Rudd Government was the first to push back the retirement age since the age pension was introduced in 1909, to age 67 by the year 2023. Now Treasurer Joe Hockey has announced it will increase again, this time to 70 by 2035.
Did you stick your hand up to retire at 70? Me neither. And while working until 70 is one thing, keeping a job until that age is something else altogether. Especially if your work involves physical labour. If retirement looked like a challenge before this Budget, it’s just got bigger. So what’s causing this problem that will affect everyone born after June 19521, and what can be done to solve it?
The trend towards a longer and longer work life is a fact, and there’s no going back. People will be forced to work longer for two reasons:
- They can’t afford to retire
- The government can’t afford for them to stop work.
The long road to retirement
Why is Australia on this path where we will have to keep working for longer than people in virtually every other developed country? What will happen now that so many people are set to outlive their super funds? And most importantly, what can you do about it, so that you are not at the mercy of the age pension after a lifetime of hard work?
retirement age increasing by 6 months every 2 years.
1. We are living longer
A boy born between 1901 and 1910 had a life expectancy of 55.2 years, and a girl 58.82. Treasurer Hockey recently stated that a child born today has a 1 in 3 chance of living to a hundred! That’s a big change indeed.
2. The ‘baby boomer’ bubble
There is a ‘demographic bulge’ that will see a surge in retirees needing support as the boomers rush to the exits. Consider these facts: between 2010 and 2035,
- The number of people aged 65 and over will double
- The number aged 85 and older will quadruple
- The number of working age people paying taxes to support those aged 65 and older will halve.
3. The high cost of living longer
The medical costs associated with living longer are exploding as well. The International Monetary Fund predicts that Australian healthcare and pension spending will blowout by a further $93bn by 20303 unless action is taken.
1. The income curve effect
The boomer generation doesn’t have enough to retire on. As their limited super and savings run out, their income on the age pension crashes to $33,000 a year for a couple. This is the same as a school leaver earns flipping burgers in McDonald’s. It’s not much, but the sheer number of people needing retirement support make it unaffordable to pay more.
2. Huge retirement shortfall
Assume your annual household income is $100,000 and you need 70% of this to be comfortable in retirement. To generate this income – $70,000 a year – you will need a lump sum investment of $1.4 million invested at 5% per annum. This excludes the value of your home. Have you got this amount? If not, you’re not alone, as fewer than 10% of Australians will be able to retire self-funded.
The good news is that there’s an answer right in front of you, and an opportunity that’s there for the taking.
1. Population growth
Just under 50 years ago – in 1966 – the population in Australia was 11.5 million. Today it has doubled to 23 million – and is
growing at a rate of 1.8% per annum4. That’s 400,000 extra people per year needing…. accommodation.
2. Housing demand
At an average of 2.5 people per household, all the extra people who will call Australia home will need just that – a home. That’s 160,000 new homes each year. Which is far more than we’ve been building.
3.Increase in housing values
With demand exceeding supply, property is increasing in value. For example, when Sydney hosted the Olympic Games in 2000,
the median price of a house was $330,000. In May 2014 it had more than doubled to $771,000. You can put this upward trend in property prices to work for you to generate the capital you will need in future years.
Preparing the way
“Give me six hours to chop down a tree and I will spend the first four sharpening the axe”.
If you are like 90% of Australians, your current and future savings will not be enough to support you through a long retirement. Which means falling back on the age pension, which is not enough either. So how do you go about solving this problem?
It starts with analysing your current situation. Including your age, current and future earnings, your partner’s earnings, the amount of tax you’re both paying, your mortgage, the potential for refinancing to make savings, the equity in your
home, your super, other savings, and more. In a nutshell, it involves looking into all aspects of your finances, so that you can work out how to get it all in order.
The good news is that there is a solution. There is a
proven method to help you work through your financial circumstances and work out a plan that will help you to retire comfortably with financial independence.
- Sources: ABS 2008; ABS 2013a. Australian Health and Welfare Services. http://www.aihw.gov.au/deaths/life-expectancy/
- Hockey signals pension age rise Financial Review 10 APR 2014 06:52:00 by John Kehoe
- Australian Demographic Statistics, Sep 2013 LATEST ISSUE Released 27/03/2014 http://www.abs.gov.au/ausstats/abs@.nsf/mf/3101.0
“A journey of a thousand miles begins with a single step”.
Lao-Tzu, The Way of Lao-tzu,
Chinese philosopher (604 BC – 531 BC)
Since 1999, McCarthy Group has worked with thousands of families across Australia to analyse their current and future financial positions and develop tailored solutions to enable them to achieve a comfortable future.
We can also help you establish your financial goals and develop a plan that will set you on the road towards achieving them, all based on your personal income, tax, mortgage, savings and overall life situation.
The bottom line is that if you are set to work until you are 70, and the government can only offer a limited age pension after that, you need to find a solution. We can help you take the first step and work with you to achieve this, as hundreds of our clients will happily confirm.
We will share more insights with you on subjects including:
For further information on how McCarthy Group can help you
achieve a secure and comfortable financial future, please call us
on 1300 850 318, or email us at
An Inspirational Case Study
Get started sooner
rather than later
Christine & Peter Griffiths,
investors since 2001
Christine and Peter have one clear message to other investors—“get started sooner rather than later.” As a result of building their property investment portfolio they are reaping the benefits of having the freedom of choice.
Peter says, “We now have three investment properties, and this has allowed us to have new cars, get a new kitchen, and have holidays.” He recognises that life without investment properties would be harder, and they would certainly not be in a position to help their children. Although Christine says, “Our children now think we’re
difficult to buy presents for. If we want something we just go buy it.”
What Christine and Peter most value about working with McCarthy Group is that their investment property portfolio was tailor-made for their unique needs. They also appreciate the support that has been provided from beginning to end. Christine says, “You don’t need to do it all, it’s okay to call in the experts.”