Major trends affecting Australians reaching retirement

When you’ll be able to retire and how you’ll spend retirement depends on a number of factors. Here are the trends affecting retirement in Australia.

The economic impact of COVID-19
COVID-19 had a big impact on a lot of people’s superannuation balances, throwing retirement plans into disarray for many.

While markets in Australia and around the world have recovered, and super funds have definitely recovered those early losses, the situation is still more volatile than it was pre-COVID, according to a leading superannuation research house.

SuperRatings explains that while vaccine rollouts under way around the globe are lifting market confidence and returning conditions to normal, the situation is still a long way from the stability the world knew before the pandemic.

Many older Australians also lost their jobs during the pandemic, reducing their ability to save for their retirement.

Increased life expectancy
Life expectancy, both as measured from birth and at retirement, has continued to improve. Due to this, the expected number of years retirees need to fund is growing.

Mortality rates for those aged 60 to 90 years have been rapidly improving since the 1970s.

However, mortality rates for those aged 90 and over have worsened; this is most likely due to a larger portion of the population reaching these older ages. 

Health expectancy has also increased, meaning that many retirees are not only expected to live longer, but be healthy and energetic for longer.

This means that they will need their retirement funds to last a lot longer than previous generations of retirees. Retirees are expected to plan to live well into their mid to late-80s or beyond.

Read more: Life is for living, while the money lasts

Increased health and aged care costs
One of the by-products of increased life expectancy is increased health and aged care costs (including private health insurance if you have it).

The ASFA has released that the average retired Australian couple spends between $4700 and $9700 per year on health costs, so it is a significant expense.

Reduced levels of home ownership
Home ownership rates overall are on the decline in Australia. Currently, 76 per cent of Australians over 65 own their home but, according to the Grattan Institute, this will fall to 57 per cent by 2056 due to housing affordability issues.

The number of Australians entering retirement while they still have a mortgage is also increasing. This means that they have to either use part of their super to pay off the mortgage when they retire, or continue to make repayments out of their super income or pension.

The Centre of Excellence in Population Ageing Research (CEPAR) believes that 60-70 per cent of older single people who rent private housing live in poverty.

Read more: Retiree home ownership is about to plummet. Soon little more than half will own where they live

The Age Pension eligibility age has increased
The age you become eligible for the Age Pension has been gradually increasing from 65 years to 67 years.

On 1 July 2019, the eligibility age rose from 65 years and six months to 66 years (for anyone born between 1 January 1954 and 30 June 1955).

The next increase, to 66 years and six months, will take effect from 1 July 2021, and another, to 67 years, will take effect from 1 July 2023.

An increase in life expectancy equals more pressure on the pension system. This pressure could force the government to make the income and assets tests to qualify for the pension stricter over time, so it’s important to effectively plan to self-fund your retirement as much as possible.

Women tend to have lower superannuation balances
Numbers from Women in Super show that women currently retire with 47 per cent less superannuation than men, yet they are living, on average, five years longer.

There are some obvious reasons for this, including the fact that many women take time out of the workforce to have or raise children. But a low super balance provides a financial challenge in retirement, especially for single women. Statistics show that 40 per cent of single retired women experience economic insecurity or poverty in retirement.

Changes to compulsory employer super contribution
The compulsory employer super guarantee percentage is scheduled to progressively increase to 12 per cent by 1 July 2027.

This is the amount of your earnings that your employer is legally required to pay into a super fund on your behalf.

The current rate is 9.5 per cent and increases are scheduled every July for the next five years.

On top of all the changes, the Australian super system can be complex and hard to navigate without expert advice.

Read more: Common mistakes Aussies make with their super

Self-employment numbers in Australia
Approximately 10 per cent of the Australian population is self-employed.

Those who are self-employed are not required to make super contributions to themselves if they’re operating under a sole trader or partnership structure. Many people don’t but there are tax benefits if you do, you can tax deduct up to $25,000 per year as super contributions.

If you’re self-employed and you aren’t investing in other assets or building up your business to either sell or to continue to provide you with income in retirement, you may not be financially secure enough to retire when you want to.

The saying that ‘those who fail to plan, plan to fail’ is especially true when it comes to planning financially for your retirement. The earlier you start planning, the better, but it’s better late than never.

What’s the biggest thing affecting your retirement? Have you noticed any other trends?

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Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.

Written by Ellie Baxter