Longer life means more money needed to fund longer retirements

Australians can now expect to live longer than any generation before them, with the latest data from the Australian Bureau of Statistics placing the nation in the top 10 countries ranked by life expectancy.

The average male born today can expect to live to 81.2 years, up from 80.9 years for those born in 2017-19, while the average female life expectancy has increased from 85 years to 85.3.

Compared to 1990 statistics, the average life expectancy for males has jumped 8.9 per cent from 73.9 years. For females, the average life expectancy has increased 6.1 per cent from 80.1 years. And the gap between male and female life expectancy has closed from 6.2 to 4.1 years.

While living longer should come as good news to most Aussies, for retirees longevity comes with additional challenges – namely, how to fund those additional years.

The YourLifeChoices 2021 Older Australians Insights Survey revealed that 25.6 per cent of the 7155 respondents believe they will need between $250,001 and $500,000 for a comfortable retirement as a single. Just under 24 per cent say they will need between $500,001 and $750,000, 16.6 per cent say $750,001 to $1 million and 21.4 per cent more than $1 million.

Read: Retiree costs rising at a blinding pace: report

For a comfortable retirement as a couple, 11.9 per cent say they’ll need between $250,001 and $500,000; 17.9 per cent say $500,001 to $750,000; 19.6 per cent $750,001 to $1 million, and just under half (44.99 per cent) say they’ll need more than $1 million.

Regardless of relationship status, more than half (52.3 per cent) do not have the amount they believe they’ll need to be comfortable and 56.71 per cent do not believe they’ll have enough savings to fund the rest of their lives. A further 10.2 per cent are ‘unsure’.

Running out of money is known in financial circles as ‘longevity risk’. YourLifeChoices research is backed by an Association of Superannuation Funds of Australia (ASFA) study that also found most Australians will spend all their savings in retirement.

Read: Some COVID financial shocks will last a lifetime, report finds

Using tax office data, as well as research from the Australian Prudential Regulation Authority (APRA) and Household, Income and Labour Dynamics in Australia (HILDA) research, the ASFA study found:

  • The proportion of the population with superannuation drops sharply with increasing age.
  • 80 per cent of people aged 60 and over who died between 2014 and 2018 had no super at all in the four years before their death.
  • For those aged 80-plus, more than 90 per cent had no super in the four years before death.
  • For the 80-plus group, only 5 per cent had more than $110,000 in superannuation in the four years before their death.
  • Even in the case of those who died aged 60 to 69, fewer than half had any super at all.
  • Men are more likely to have superannuation than women. Of females who died between 2014 and 2018, only 15 per cent aged 60-plus had any superannuation at death compared with about 25 per cent of men.

ASFA says couple homeowners aged around 65 need to spend $63,799 per year for a comfortable retirement and single homeowners $45,239. A modest retirement would cost a couple $41,446 and a single $28,775 a year.

According to the November edition of the YourLifeChoices Retirement Affordability Index – Australia’s most accurate cost of living retirement table compiled in association with The Australia Institute – a well-off couple (self-funded retirees) should budget to spend $78,833 a year and constrained couples (homeowners on a part Age Pension) $45,495. Annual costs for cash-strapped couples (renters on an Age Pension) were $38,184.

Well-off singles would spend $45,009, constrained singles $25,069 and cash-strapped singles $23,994.

Retirement income could be derived from super, part-time employment, investments, the Age Pension or a combination of them all.

Read: The three pillars of wellbeing that can increase longevity

However, those earning income from super have an advantage, says Vanguard senior personal finance writer Tony Kaye.

“That’s because any income earned on money held within the superannuation regime, once converted into an account-based pension, will be tax-free. Income on money held in an accumulation account will be concessionally taxed,” he wrote in The Australian.

Ultimately, older Australians will need a sound investment strategy to see them through.

“Taking an active role in your investments, to ensure you have the best chance of protecting and growing your capital, is just as important in retirement as it is before you stop working,” says Mr Kaye.

“For many retirees, low-risk assets such as cash and government-backed bonds are often seen as the safest ways of protecting capital over the long term.”

However, investors need to be wary of investment hazards over the long term.

“Asset classes perform differently from year to year; what you may see as a safe investment strategy today could easily become the opposite over time,” he says.

“Investing across a range of asset classes during pension drawdown phase, including more volatile growth assets such as shares and listed property, will help smooth out poor returns from other asset classes from year to year.

“While there’s no guarantee your retirement savings will last until you die, a diversified investment strategy will inevitably deliver steadier, tax-effective long-term returns.”

Are you concerned your savings won’t last your life? What do you do to ensure you’ll have as much as possible for as long as possible? Why not share your tips in the comments section below?

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