Finance Retirement Retirement at 65? You’re dreamin’

Retirement at 65? You’re dreamin’

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Stop counting your grey hairs in the mirror for a moment and ponder the thought: Australians are getting older.

In fact, we’re getting a lot older and it’s happening quite quickly. The proportion of Australia’s population aged over 65 is set to double in the next forty years. And those over 85? That number is about to triple.

And our population is not only getting older, we’re living longer too. The life expectancy of a healthy man and woman in their mid-sixties is now 84.1 years and 87 years respectively. That compares with just 76.3 years for men and 77.9 years for women a century ago.

The upshot is that we’re about to spend a quarter of our lives over the traditional retirement age of 65.

So does that mean couple of decades to kick back and enjoy the good life once our careers are over? Sounds like welcome news. But here’s the kicker: a higher proportion of people in retirement means a lower proportion of workers paying taxes to cover costs like age pensions, health care and facilities, putting significant pressure on government budgets. With the Abbott Government recently flagging its intention to tighten eligibility for some income support payments, when fiscal push comes to shove, could the viability of the aged pension be next under the microscope?

Social researcher Mark McCrindle says in coming years the numbers definitely aren’t going to add up for governments. “We’ve got revenue challenges and at the same time we have cost increases with an ageing population. We’re looking at a system that is unsustainable.”

Professor John Piggott, director of the ARC Centre of Excellence in Population Ageing Research, doesn’t think we’re necessarily staring down the barrel of an age-based budget blowout: “Crisis is a strong word – I would say it’s a challenge. I would say it is something that requires continuing attention.”

So what does this mean for the age pension? Does this imbalance in the books mean the pension is at risk? Will it go the way of the dinosaurs, Betamax and free university education?

Probably not, says demographer, Bernard Salt from KPMG. “The age pension will always be there, but … it may be that access becomes more constricted.” He also expects that the retirement age will push out as the population ages: “It is not inconceivable that Gen Y won’t get access to an age pension until 70.”

The Australian Government has already acted to increase the qualifying age for the age pension from 65 to 67 by 2017, but McCrindle thinks that pushing back the pension age by a year or two is just tinkering at the edges. “I think we’ll see that pushed back a fair bit more. And we’re likely to see more assets tests in order to get that pension.”

While the experts don’t necessarily agree on whether this is a red-hot crisis to be urgently addressed or a fiscal factor to keep in mind, the upshot for the generations born after 1964 is this: in the future, the age pension is likely to be harder to get, you’ll have to be older to get it, and it probably will be less than you need to lead the lifestyle you want.

Unless you want your retirement to be harder, later and less, you’ll have to look at how you’re preparing for life after work. Luckily, the experts have some advice.

1. Change your mindset – the pension isn’t a right

First off, we need to change the way we think about the age pension.

“I think we’re probably still in the mindset that we’ve paid our taxes to the public purse, so in the future we’ll get our return on that as a pension,” says McCrindle.

“The pension is a separate safety net for people who don’t have the resources to fund their retirement.

“We need to start with the younger generation so that they get the concept of a pension, not as a right, but as a safety net.”

2. Super-size your super

If relying on the age pension isn’t a good option (and it isn’t), you need to ensure you are investing as much as you can now (and reduce your debts) to prepare for a ‘user pays’ future.

“Pay as much now as you can now into superannuation. Pay off your home,” says Salt.

3. Futureproof your career

If you’re going to have to work later in life, you need to make sure that job will still exist in 20, 30 or even 40 years’ time.

Salt recommends that workers “develop skills that are transferrable into old age; for example, a boilermaker might develop handyman skills.”

McCrindle agrees that it’s important to take the long view.

“If you’re in your 50s and in a career that is winding down (and we’ve seen a few industries wind up pretty quickly), you can be gearing up into a career that has a few years to go,” he says.

4. Stay healthy

In the future, the costs of health care are likely to be higher, and you’re more likely to be meeting them yourself – so it makes good financial sense to do what you can to stay well for longer.

“Look after your health so you can work later,” says McCrindle.

5. Consider staying in your job for longer

It may seem like a no-brainer when the official retirement age is going up, but Piggott points out that it’s much harder to re-enter the workforce once you’ve left it.

“Once you leave the workforce at older ages, it’s very difficult to reattach,” he says.

“People make a decision (especially with the superannuation access age being lower) to leave the workforce at 60. And then at 62 or 64 they realise, ‘Gee, we thought this nest egg was going to see us through, but it isn’t delivering what we want’.”

When these people seek to head back into the workforce, they realise how difficult it is: “It’s easier to keep a job than to find a job after some period out of the workforce.”

6. Sorry kids: no inheritance for you

People are steadily realising that it’s OK to not leave anything for your kids when you die (except loving memories, of course).

“In the past, there was a social value that you needed to save as much as you could as a pensioner and save your house to pass on to the children,” says McCrindle.

“Now, that’s not the expectation. It’s fine for [parents] to spend that money on their lifestyle or sell their house as bond for an aged care facility – as they should because they’re living longer.”

The upshot? Work out how much you’ll need and then use it all up – and make your final lesson to your kids one of self-sufficiency.

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