It seems as though many of you feel “financially unprepared” for your retirement, especially with those changes to the Age Pension about to come into effect. According to a recent report in the Herald Sun, at least half of older Australians don’t feel ready for retirement, while more than a quarter of those aged 55 years and older have concerns about your ability to afford household bills and food.
The survey, conducted by VicSuper, suggests only 8 per cent of those aged 55 years or older are actually secure enough to head into retirement.
You’ve all read about the changes coming into effect from January 1, 2017. They will reduce the upper threshold for the Age Pension entitlements but increase the lower threshold.
VicSuper boss Michael Dundon says more Australians are turning to “private pensions” — those that make regular superannuation payouts as a mock income — to help manage their savings.
You have to ask why more retirees are running out of money in retirement though.
It’s a bit of a no-brainer, but the reason you are running out of money sooner is because you are living longer. The World Health Organisation has revealed that a man in his mid-60s in Australia can now expect to live until he is at least 85 years, while a woman in the same age range has a life expectancy of an extra two years (at least). Yet, while this is great news perhaps not so great is the static nature of your retirement age — 65 years since the 1950s. That’s a long time to be in retirement…
With all that ‘time’ spent in retirement you are able to maintain an active lifestyle, both physically and socially. A HSBC report found that at least 45 per cent of people expect their social lives to improve during retirement. Chances are you have done some travel, you’ve embraced a new hobby, and you have surrounded yourself with family and friends as you have got older because there is now the opportunity to do so.
Such behaviours improve your quality of life, which is great, but it can also make things a touch more expensive too.
With the above in mind, you are less likely to scrimp and save and more likely to use your savings when and how you see fit. The Government determines just how much of your superannuation you must drawn down from each year, and that same HSBC research has found that at least half of all retirees are taking more than the minimum amount from their funds. Naturally, this will have an impact on your savings in the future.
However, you are likely to require a much larger superannuation nest egg in retirement today than in earlier years.
With that in mind Dundon says you need to be diligent about saving for as long as you can.