Costs delaying your retirement

Several studies in previous years have concluded that government policy has encouraged older Australians to retire earlier rather than later.

More recently, however, that trend may be reversing with seniors opting to stay in the workforce longer. Among the reasons for stretching out a career are the increasingly stringent rules limiting access to the Age Pension and the historically low-interest rates that barely allow pensioners’ savings to hold their value.

A survey conducted by Roy Morgan research 18 months ago found the average age that individuals aspired to retire had risen three years in just 12 months, from 58 to 61.

Recent Coalition government budgets, however, have contained several disincentives for those contemplating hanging up their hats sooner.

In January last year, more than 300,000 Australians lost Age Pension entitlements when the assets test was tightened. This gave food for thought to pre-retirees who may also have breached the threshold for the payment, forcing them to keep working longer in lieu of Age Pension eligibility.

“The changes to the Age Pension have rattled people quite a lot,” Aspire Retire Financial Services co-founder Olivia Maragna told the Australian Financial Review. “People are starting to realise that the Government is not going to support them.”

She added that the Government had not given individuals enough time to change their savings plans in response to the pension cuts, leaving them little choice but to work longer if they wanted to maintain their lifestyle in retirement.

The stricter assets test meant the upper threshold for a couple who own their own home to receive a part pension fell to $816,000 worth of assets from $1.2 million. For a single home-owner the threshold fell to $542,000 worth of assets from $794,000.

From July 2017, the Government introduced the $1.6 million transfer balance cap, limiting to that figure the amount of money in a super fund’s retirement phase which would not attract tax on earnings. The purpose was to force earnings on balances over $1.6 million to be taxed.

For those at that threshold, the foregone tax-free element may be enough reason to keep working.

Also keeping old Australians working are cost-of-living factors, non-paying ‘kiddults’ who will not move out of home, or worse, adult children who depend on the ‘Bank of Mum and Dad’ to fund their first homes or other expenses.

Individuals who are cash-strapped with few savings are concerned over how they will maintain their lifestyles in old age. Soaring health insurance, electricity, gas and petrol prices are putting a major dent in retirees’ funds as the cost of those items increase beyond the rises in the Age Pension.

Once, many moons ago, retirees could depend on reasonable income from double-digit interest paid by banks on their savings. But those days have gone with few deposits attracting more than 2 per cent a year – hardly keeping pace with inflation.

Earlier this year, Australian Bureau of Statistics chief economist Bruce Hockman told news.com.au that: “A decade ago, around 9 per cent of people aged 65 and over were employed. This has increased to around 13 per cent in 2016–17.”

Launching the report, Retirement and Retirement Intentions, Australia 2016–17, Mr Hockman said that 38 per cent of individuals delaying retirement cited financial security.

Of those who had an age in mind as to when they wished to retire:

  • 20 per cent intended to retire aged 70 years and older (22 per cent of men and 18 per cent of women)
  • 50 per cent intended to retire between 65 and 69 years (53 per cent of men and 47 per cent of women)
  • 23 per cent intended to retire between 60 and 64 years (19 per cent of men and 27 per cent of women)
  • 7 per cent intended to retire between 45 and 59 years (6 per cent of men and 8 per cent of women).

If you are not yet retired, are you contemplating staying on at work longer? Were you forced to delay retiring, and if so, what were the reasons?

Written by Olga Galacho

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