Australians are living longer

A recent report indicated that Australians born today can expect to live beyond 90 years of age. The fact that we are living longer is definitely good news as far as I’m concerned. However, it does present a problem when it comes to having enough money to fund our retirement.

The concept of retirement is relatively new. In the early 1900’s when Australia introduced an Age Pension for men over 65, the average life expectancy was 58 – most never even reached retirement.

As life expectancy has steadily increased, so has our time in retirement. These days, many people will be retired for 30 years. This is only fractionally longer than our working life.

Furthermore, we are entering retirement in better shape, so our early retirement years are far more active (and expensive) than previous generations.

In many ways, this is terrific!  We get to spend longer exploring the world without work getting in the way.  There is a small catch – how can we afford it?

This presents a problem at a society level, with most retirees at least partially supported by the age pension.   But, I want to more focus on the individual.

Essentially, if our retirement funds need to last longer, we have two options, save more or spend less.  For most, the idea of spending less and reducing our standard of living is not overly appealing.

For many baby boomers, who haven’t had compulsory super their entire working lives, it may be necessary to access the wealth in their residential home. Many would have hoped to pass this asset on to their children.  This may no longer be an option for some.

Compulsory superannuation is forcing most of us to save for our retirement but, given ever increasing life expectancy, this may not be enough. The risk is greater for those who are self-employed and do not have compulsory super.

It is more important than ever to pay attention to our retirement savings as early as possible to ensure that we put ourselves in the best possible position for the future.