Is retirement a sustainable proposition?

World coins in glass savings jar with retirement plan label

Over the past week or so I have been reading a couple of articles that painted a rather gloomy outlook for retirees in the coming years.

Most Australians will be reliant on the government age pension to meet all, or a part, of their income needs – at least some time in their retirement.

That is an inescapable fact.

A small number of the population will remain self-funded retirees – for example; having no reliance on government funded income support (except for the Commonwealth Seniors Health Card).

However for the most part, at some stage in retirement, we will need to make a visit to Centrelink and submit an application for the age pension.

For regular readers of this blog you will recall Mark Teale’s recent article in which painted a brief history on the age pension in Australia.

You may recall that the Australian age pension first became available to eligible folk once they turned 65 years of age – back in 1909. The Commonwealth age pension replaced pensions previously paid by the colonies (today known as our states and territories – before Federation).

However, the age pension is a relatively recent concept. It was in the mid-to-late 1800s that we started to see pensions introduced in parts of Europe by Otto von Bismarck, and for municipal employees (teachers, police, and firefighters), in the United States.

Like Australia – the American and European age pensions became payable to individuals once they reached a pre-determined age – generally between 65 and 70.

What was equally interesting was the fact that the average life expectancy at the time was around the same as the age of a person who would qualify for the age pension.

The governments back then worked on the theory they would only have to pay an age pension to those who survived until the qualifying age, and then it would only be payable for a relatively short period of time.

As Mark rightly mentioned in his recent blog – we are all living much longer than previous generations.

The Australian Bureau of Statistics estimated that in 2014 there were over 4,000 Australians aged 100 or older. This represented an increase of more than 260 per cent over the last two decades. In fact, today in Australia there are four living ‘super-centenarians’ (people who have lived up to, or over, 110!).

Even though we may not all live to be 100; Australians are living much longer than previous generations.

Today – if someone passes away in their mid-to-late 70s it is deemed a tragedy that they died so young. Twenty years ago we would have said they lived a good and long life.

But – what does a long life have to do with the age pension?

When the age pension was first introduced, it was designed to provide income in the final years of life when people were simply too old to work.

However today’s 65 year old is looking at 20 to 30 years of life ahead of them. Future governments simply will not be able to afford to pay an age pension to an increasing number of retirees who are living many years in retirement.

What might the future hold for retirement income and government support?

  1. Expect to see the qualifying age for the age pension increase over time. The age has already increased to 67 for people born after 31 December 1956. There have been suggestions, and even draft legislation supporting increasing the qualifying age to 70. I would not be at all surprised to see it extended to 70, and even beyond in the coming years.
  2. Expect to use our own money first to support our retirement lifestyle and only then receive a government-funded age pension. Long gone are the days when we can amass large amounts of money in superannuation for the benefit of future generations. We will need to draw down on our savings before being entitled to government income support.
  3. Don’t be surprised if the value of the family home is included when determining eligibility (assets) test for the age pension.
  4. We will all be working longer. Unless we have significant financial resources that enable us to fund our own retirement independently of the age pension, we will need to work longer.

We all have choices.

If we desire a comfortable retirement that costs more than the age pension and our super may provide, some continued engagement in the workforce into our late 60s and even our early 70s may become a reality. Whether we remain an employee, or start our own business; and whether we work part-time or full-time; the options are endless.

Whatever we find ourselves doing – let’s make sure we enjoy it to the fullest.


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