Living longer needs a smarter super savings strategy

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Australia has a substantial ageing population. More people are reaching retirement age than ever before and they’re also living longer thanks to medical advances and improved knowledge about how to live a healthy lifestyle. And while a long retirement is something to look forward to, it means that your retirement savings need to stretch even further.

So how will your retirement compare to previous generations?

1. You’ll be retired for longer
Average life expectancies in Australia have increased significantly for both males and females. Males who are currently 65 are expected to live to 86.9 and females who are 65 to 89.2 years[1]. In previous generations, people could expect to live another 10 to 20 years after they retired. Today it is common for people to spend 30 years in retirement – and in some cases, even longer.

2. Your retirement will cost more
Living longer means you’ll need more money to fund your retirement. If you look at the retirement household expenditures by tribe, you will note that homeowners on a full or part Age Pension will need $42,995 per couple to keep pace with the cost of living (maximum Age Pension was $35,573 as at 20 March 2018). Even those who qualify for the full Age Pension and Pension Supplement entitlement, will struggle to afford meals out and holidays, with their income barely covering expenses. That’s why you need to make the most of your super savings.

3. Your retirement savings need to keep working hard after you retire
Withdrawing all your super when you retire and leaving it in cash is unlikely to provide you with enough money to fund your retirement. To maintain a healthy income, you need your super to continue working as hard as possible throughout your retirement. That may mean keeping your super invested in a diversified portfolio of assets based on the level of risk you’re prepared to take (for example, shares, property, bonds and cash) so it can provide you with regular income.

To give you the peace of mind that you won’t run out of money, you may want to consider using part of your retirement savings to set up an annuity. An annuity can provide you with regular and stable income that is guaranteed to continue for a certain number of years or for the rest of your life – whichever you prefer. You can even elect for your annuity payment to be increased each year to keep pace with inflation.

What is an annuity?
An annuity is a secure investment that provides a series of regular payments in return for a lump sum investment. It can be used with other retirement investments, such as account-based pensions, to set up a dependable income that can last through retirement.

How does it work?
Let’s look at a case study to illustrate how an annuity can complement an account-based pension and help retirement savings last longer.

Meet Dimitri and Maria, who are both 67 and retiring. To achieve a comfortable retirement, they believe they would need an annual income of approximately $60,000 and hope to be able to spend this way for as long as possible.

They own their home, have no debts and $250,000 each in superannuation. In addition, they have personal assets worth $20,000 and they have $50,000 in the bank. They estimate that they will have ongoing essential expenses of about $42,000 a year in retirement, an amount above the maximum Age Pension of $35,573 (as at 20 March 2018) and significantly above their current Age Pension entitlement of $20,792 (based on their assets and income as at 20 March 2018).

On the advice of their financial adviser, Dimitri and Maria invest $75,000 each in a lifetime annuity, providing them with a secure income of $8202 per yearii for the rest of their lives, and that may rise with inflation. This ensures that should their other assets ever run out, they will be able to meet their essential expenses with the combination of this income and the maximum Age Pension payable.

They decide to invest $175,000 each into an account-based pension and elect to receive $29,006 in the first year of retirement.

Total income, including income earned on the money they have in the bank, during the first year of their retirement is $60,000.

The diagram below shows how this combination of investments is ‘layered’ to provide a secure income in retirement for Dimitri and Maria.

By investing in a combination of a Challenger lifetime annuity and an account-based pension, Dimitri and Maria have:

  • a safe and guaranteed income stream from the Challenger lifetime annuity that, in addition to their Age Pension entitlement, can help cover basic expenses for the rest of their lives and provide some protection against share market risk
  • variable income from the account-based pension designed to pay for the ‘nice to haves’ and maintain some flexibility
  • exposure to the share market through the account-based pension
  • inflation protection from the Age Pension and Challenger annuity.

To find out more about your retirement income options, including whether an annuity might be suitable for you, talk to your financial adviser, visit or call Challenger on 13 35 66.

[1] Challenger and Thomson Reuters, ‘Retirement and Aged Care Planning 2017-18’

ii Challenger Guaranteed Annuity (Liquid Lifetime) is based on a quote as at 20 March 2018, purchased with superannuation money, using the Flexible income option with standard death benefit, maximum withdrawal periods and monthly payments which are indexed annually with inflation providing a first year payment of $4,208 for Dimitri and $3,994 for Maria.

DISCLAIMER: This case study relates to a hypothetical couple, and is provided for illustrative purposes only. It is based on information that is current as at 20 March 2018 unless otherwise specified and is provided by Challenger Life Company Limited ABN 44 072 486 938, AFSL 234670, the issuer of the Challenger Guaranteed Annuity (Liquid Lifetime) (Annuities), and Challenger Retirement and Investment Services Limited ABN 80 115 534 453, AFSL 295642 (together referred to as Challenger). It is intended to be general information only and not financial product advice and has been prepared without taking into account any person’s objectives, financial situation or needs. Each person should consider its appropriateness having regard to these matters and the information in the product disclosure statement (PDS) for the Annuity (available at before deciding whether to acquire or continue to hold an Annuity. Any social security illustrations are based on current law at the time of writing which may change at a future date. Challenger is not licensed or authorised to provide tax or social security advice. We recommend that prospective investors seek professional advice in relation to their individual circumstances.

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Total Comments: 2
  1. 0

    A big emphasis is always given to retired couples owning their own home. We do have our own villa unit in a country town but with council rates (with pension concession) is still $2200 per year and Body Corporate fees (mostly spent on compulsory insurance) is $2300 annually. Maintenance sometimes requires an extra levy which a house owner can defer – even if the roof leaks he does not have to do anything about it. Insurance for him/her is also an optional and not so for a unit owner.
    On top of that comes health insurance of $4600 per annum (at my age I cannot let it slide) so the age pension is certainly never enough for a comfortable life. The part pension saves us as we have some money in the bank and a few shares. Most probable will get the full pension when the money runs out.

  2. 0

    Good comments Jim. We’ll all be “nickel and dimmed” to bits if the g’ment get their way. It seems once all the bills are paid that there’s never enough left to still enjoy life in retirement. That’s my aim, to be able to pay the bills, rates, body Corp, insurance, health insurance, have a car and still have a little left over to travel a bit and still have a bit of a safety net, just in case!! By he’ll, they make it harder every year. (Not forgetting the tax man also.).



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