Preparing for retirement

We all know about ageing – but are workers preparing for retirement?

When do you plan to retire?  How long do you anticipate living after retirement?  Tricky questions that need some well calculated answers.

The Australian workforce has a mass exodus looming.  The ageing of our workforce means we could face a shortfall of nearly 200,000 workers in the next five years.

According to the Australian Bureau of Statistics, 12% of the population was aged 65 years or over in 1993. This is projected to increase to 14% by 2021, rising to 22% by 2041.

This massive drain of labour will have a huge impact on our economy.  Productive capacity will reduce.  Labour will be in shorter supply.  Valuable skills will no longer be available to employers.

Then we have the pure financial impact.  Our national savings will start to ebb as retirees draw down to fund their retirement.  The pool of revenue available to federal treasury will shrink.  And the expenditure required of government will increase.

As the population ages, the strain on health budgets will increase.  Infrastructure changes in aged housing and transport will be required for a more dependent and less mobile population.

So it’s no wonder the government has been encouraging workers to invest heavily in superannuation.  The better workers are preparing for retirement then the less government budgets will be put under strain.

So, back to the earlier questions.  When will you retire and how long do you plan to live?

There is no absolute ‘use by’ date on Australian workers.  The age pension kicks in at age 65 and 61 for men and women respectively.  However, realistically retirement can start at any time after 50.

Financial analysts advise retirees to plan sufficient retirement funds to take them through to at least 80 years of age (or 85 for women).  That’s a lot of money!  Let’s say you retire at 60 with $500,000 in superannuation and plan to live on $50,000 per year.  If your fund continues to earn 8%, the money will last until you turn 79.  And if it earns less it will run out earlier.  Whoops!

Ten to fifteen years ago, nearly three quarters of men and nearly nine out of every ten women retired from full time work in the five years prior to being eligible for the age pension.

That scenario was possibly the result of the 1990’s economic recession when many older workers received redundancy packages that helped fund their early retirement. 

Twenty first century retirees are likely to combine part time work with their superannuation savings.  Realistically, many will be forced to do so.

But staying in the workforce is not a bad thing.  Older workers will still be in demand by skill-starved employers.  And without retention of older workers Australia will suffer an employment crisis that could be enormously detrimental to our economy.

Whatever your plans for retirement, it makes sense to bolster your superannuation savings as much as possible.  Young workers too should take advantage of the tax savings available through salary sacrifice.  The federal government will also co-contribute to the super funds of low income workers.

Let’s face it, 60 is only a “long way off” in the eyes of our children.