Despite what is reported in the media, the majority of today’s baby boomers don’t have millions of dollars stashed away in retirement savings. If they’re lucky, they will have a modest sum saved in super and own their own home, but, increasingly, this is not usually the case.
For those Australians contemplating their future in retirement, it will most likely have a very different look and feel than they imagined. And so, reimagining retirement is very much a necessity.
The Age Pension, at a grand total of $22,542 per annum (if you’re eligible for a full Age Pension), doesn’t even cover a modest standard of living based on the figures collated by the Association of Superannuation Funds of Australia (ASFA). For a single person, ASFA calculates that you need $23,695 per annum to live a modest lifestyle and $42,962 for a comfortable lifestyle.
Over the last few years, changes to how income and assets are assessed have meant that those on a part Age Pension have seen their payments reduced or have been unable to switch certain investment products that have been grandfathered under previous rules. This may have resulted in those in retirement having less income to live on than they had previously thought.
Changes scheduled for 1 January 2017 will also impact the retirement income plans of boomers, with assets thresholds changing and the taper rate doubling for asset values held over the threshold.
Investments and financial advice
A perfect indicator of the impact of share market volatility in investments is the turmoil that has been experienced since the start of the year. Baby boomers planning to retire in the next year have seen thousands of dollars wiped off their nest eggs.
The lack of trust in financial planners compounds the problem, with many Australians not knowing to whom to turn or who can be trusted. Financial planning in the retail sector has especially suffered with the numerous instances of planners associated with the big banks providing flawed advice and in some cases undertaking fraudulent practices.
The onus is very much on individuals to ensure to the best of their ability that the person or financial institution responsible for their investments is indeed acting in their best interests. While certain safeguards have been put in place, such as the Financial Advisers Register held by ASIC, the information input by planners is not verified: they simply don’t go far enough.
The age at which you can apply for an Age Pension is gradually increasing and will reach 67 by 2023. However, plans for the government to raise the age to 70 by 2035 have been well documented, if not legislated. While people are being expected to work longer, the lack of suitable jobs could become a problem. Even the healthiest of individuals can’t be expected to do the same kind of work in their late 60s as they did in their 40s. Yet the opportunities to switch careers are limited, notwithstanding the fact that many older workers face discrimination when job seeking and take considerably longer to secure a position.
With men now expected to live to 84 and women to 87, the time actually spent in retirement is a lot longer that it used to be. This means your money has to last longer and you also have to have plenty to do to keep you active and healthy. You’ll also have to make decisions about aged care – whether you’ll be able to remain in your current home and be cared for there or put provisions in place should you require residential care.
For many different reasons, people can find themselves in new relationships later in life and this can bring a change in lifestyle. It may result in a blended family, or maybe even having a second family, for which you will need to be provide. You may also find yourself not quite where you had hoped to be financially, as you may have had to split your assets. This can delay when you planned to retire or change the type of retirement lifestyle you can afford.
Gone are the days when people entered retirement owning their homes outright and having no personal debt. Many older Australians are facing retirement while still paying a mortgage and debt, and many are entering this stage with no property and will need to continue paying rent.
Has your view of retirement changed? Did you have time to make effective changes to improve your retirement?