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World Economic Forum Report on Retirement in Australia

Australians will outlive their Super

The Bottom Line : “Your life expectancy is outgrowing your retirement savings!!”

Does this resonate and leave you fearful that you will outlive your savings?

Well it certainly should!

The WEF state that your lifespan is outgrowing your savings by 1 year every 5 years, equating to 5% pa – yet we know that most industry super funds long term performance is only around 5% on average. Meaning you are going nowhere fast!

Another major concern you would have to agree.

The average retirement savings will last 9.7 years, the WEF raise a very serious concern here stating that you will outlive your savings. In fact, men will outlive their savings by 9.9 years and women who live longer by 12.6 years. That is another ten to twelve miserable years of existence, not life!

“Is this what you really want for yourselves?”

How will inflation impact your savings? Is another worthwhile question you should be concerned about?

The report alludes to those who are investing in equities will have more at retirement over others but that investing in equities has its own level of risk. We know that the closer you get to retirement you would naturally want to be moving your life savings into conservative portfolios to protect your capital.

Yet Australian super funds include 80% exposure to growth assets, even into retirement, after your contributions stop. In part a much-required strategy, however at times such as the GFC and other economic events a major disaster for retirees.

Most Australians will retire with around 70% of their pre-retirement wage and if live frugally could extend their retirement savings beyond the WEF figures. But ask yourself if you want to live frugally or ‘Live the Life you Deserve and Want for yourself?’

After all you have worked bloody hard to get to be able to
retire, yeh?

Or would you have to postpone your retirement and keep on
working, what would you prefer?

The Australian government has shifted retirement planning responsibility onto you, so you either spend less or make more. OR make your money work harder for you!

Retiree debt forcing people to work longer beyond retirement age

Home Ownership + Mortgage Debt

Another recent report unequivocally states that more Australians will reach retirement with a mortgage on their homes, potentially slashing your retirement income by almost 12%.

Homeowners aged 55 – 64 owing money on their mortgages has tripled from a low 14% to a very high 47%.

This is a significant number meaning you are probably one of these and already wondering just how to pay your mortgage down sooner!

This growth in retiree debt is a very serious issue that will affect your retirement lifestyle and cash flow. Unavoidable if you carry on doing the same thing you are currently doing.

Phil Gallagher, retirement policy specialist with Industry Super Australia, said growth in retiree debt was “a very serious issue that has the ability to undermine the effect of the superannuation guarantee”.

“I gave evidence to a parliamentary committee a few years ago that showed
the average mortgage debt at retirement was now $100,000, far more than at the
end of the 1980s,” Mr Gallagher said.

That would effectively shrink a retirement super balance of $300,000 back to $200,000 for a person retiring at 67 and living until 92 – translating to a cut of $4,500 in annual retirement income comprised of super payments and the age pension.

“A cut of that size would mean you would lose all flexibility in retirement because you would need to spend all the income you could generate. There would be nothing left over for house repairs, small luxuries, a new car or caravan,” Mr Gallagher said.

Reducing income levels to $36,400 would push the retiree in question to well
below the comfortable retirement standard calculated by the Association of
Superannuation Funds of Australia (ASFA), which demands net income of $43,300 a
year.

Alternatively, a retiree with a net $200,000 in superannuation who chose to live on the ASFA comfortable standard would be forced to live on the age pension after age 78, according to the Mercer retirement income simulator. Most retirees like to have a fund for a ‘rainy day’ and paying off debt with super means people don’t have a buffer to live life.


Solutions

It is never too late to start a financial action plan and strategy to grow and secure more savings than you have right now. Remember after retirement there is still a erosive activity called inflation and so your strategy should include investments which mature after you have retired to boost your retirement savings in ensuring you maintain the lifestyle you want and deserve … after all we are living longer and you would hate to outlive your savings!

You would be wanting to consider solutions in your name and
also solutions in your Super. Mentioned above most industry funds have a
long-term average performance of a dismal 5% to 7% and then take fees out of
this for the privilege. You can do better and without fees, so why not
investigate options available to you?

Live the life you deserve and want for yourselves!

There are short term solutions offering returns of 8% to 20
something percent per annum

You can invest in property which over a 7-10 year period is classed as a low risk investment strategy (invest both in your name and you can invest using super monies as a separate investment)

Keep in mind that not all property lends itself to being Investment Grade and you would want to be working with professional partners who will help you source investment grade property. Getting your decision right from day one will have profound impact on your retirement monies compared to getting this decision wrong trying to go it alone.

What you don’t know that you don’t know results in making an ‘ill informed’ decision.

We will help you add value to your family home before you put it on the market to achieve a higher sale price when planning your downsize. Our vast experience in this space allows us to make recommendations that work at the lowest investment to give you the highest returns. Ask us how?

And of course, there are other avenues we could introduce you to. As we are not financial planners and are unable to offer you financial advice, any recommendations we introduce you to should be vetted by your accountant or other professional. In no way are we offering advice, merely introductions to other avenues and investment vehicles, educating you on the options so that you can make your own informed investment decisions. 

Based on this article, one thing for sure is that we need to do things differently to achieve different results whether that is to create financial freedom, lifestyle choices or generational wealth. Which one are you going to be fighting to achieve?

The World Economic Forum is the International Organization for Public-Private Cooperation

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