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Retirement: Just how golden are the ‘golden years’?

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· The great Australian dream, part 1: What happened?
· The great Australian dream, part 2: Working towards what, exactly?
· The great Australian dream, part 3: Home ownership? Tell ’em they’re dreaming’

Retirement in Australia is a numbers game. It begins in your teens or early 20s when an employer starts putting a little bit away for you. But who really thinks about it then?

Australians are told to put money into their superannuation accounts as early as possible. As little as $20 a week can make the difference between a “comfortable” retirement and one where the time that should be spent on the bowling green is spent trying to make ends meet.

Perhaps after the arrival of children or a 40th birthday, retirement comes into sharper focus. There might be a disappointingly small amount in each of the many superannuation accounts you have, and when you finally combine them, you are left with a slightly less disappointing amount to show for 15 or 20 years in the workforce.

According to the Association of Superannuation Funds Australia (AFSA) a “comfortable” retirement for a couple includes going on holidays, actively participating in hobbies or other interests, owning a car, having private health insurance and buying clothes.

For this scenario to work, the association calculated that a person needed to be living on an above-average income while working. They would need to have paid off their home and would need “67 per cent of their pre-retirement gross income” to maintain that lifestyle.

In dollar terms, ASFA says that means a couple needs $57,195 a year, while those seeking a ‘modest’ retirement lifestyle would need to spend $33,120 a year.

As previous articles in this series on the great Australian dream have shown, Australians are finding it harder than ever to buy a home, and the changing dynamics in the national labour market threaten job security, or at least our perceptions of it.

Are the winds of change also blowing through our retirement planning?

The long game

Simon Swanson thinks they could be, at least in part because of our longevity.

Mr Swanson, managing director of ClearView, a financial planning and wealth management consultancy, said people needed to consider how long they will live when planning their retirement. While it’s impossible to know precisely how long that might be, we do know that it’s getting longer. A male baby born today is expected to live to 79.9 years, while a female baby, on average, will live almost five years longer to 84.3, up about two years from just 12 years ago.

“Today, we are quite good at using the ‘die too soon’ products,” Mr Swanson said. “Products like life insurance, trauma insurance, income protection insurance, and protection products while we’re working. Yet, we effectively have no longevity products in the country – for example, who will care for you while you’re still at home, living in that stage before an aged care facility?”

Researchers at Deloitte have a similar view. In The Dynamics of the Australian Superannuation System, released in September, 2013, Deloitte noted that increasing longevity “means half our retirees are expected to live past 86 with a 100 per cent increase in the number of Australians over the age of 75 in just 20 years”.

The result? “Today’s average 65-year-old Australian will not have enough superannuation to fully fund his, and particularly her, life expectancy.”

Couple
A sunny retirement requires careful, long-term planning. Photo: Shutterstock

Young people today

Deloitte didn’t have good news for younger people, either. A person who has received compulsory superannuation over their entire working life may also have a shortfall.

The report noted that a 30-year-old male would need retirement savings in 2048 of $1.58 million, and a female would need $1.76  million. So, is that good news or bad news? You be the judge. Here’s Deloitte on what’s required to achieve that:

“[A] current 30-year-old would need to make an additional 5.4 per cent contribution as a male and 7.5 per cent as a female on top of their superannuation guarantee rate.”

The four pillars approach

A report released by the Workplace Gender Equality Agency summarised the four essential “pillars” of Australia’s current retirement income system. These pillars included:

  1. The superannuation guarantee – 9.25 per cent government contribution;
  2. Voluntary savings, including voluntary superannuation contributions;
  3. The age pension;
  4. Home ownership, which contributed significantly to a financially secure and comfortable retirement.

According to the report, the superannuation system was based on a 40-year continuous work history, which, in theory, would set a person up for a comfortable retirement. But theory isn’t always reflected in practise.

And under this system, women were disadvantaged by taking time out of the workforce to look after children or family members, consequently leaving large gaps in their superannuation contributions. Simon Swanson of Clearview also noted the shortfall in retirement savings experienced by women.

He said that women, who outlive men by a half a decade, “have much less money” in superannuation and that “this is a train smash waiting to happen”.

The Workplace Gender Equality Agency has numbers on the gap in retirement savings of men and women at various stages of life. For example, at 25 to 29 years old, men have 30 per cent more in retirement savings than women. At 45 to 49, men are 48 per cent better off, and at 60 to 64 years old men have 43 per cent more in superannuation.

Shortfall

Pat Parker, 70, knows what it is like to be retired and poor. Described by friends and co-workers at the Brotherhood of St Laurence workers as “strong spirited and resilient”, she suffered, and overcome, domestic abuse, a broken marriage and health problems, only to end up living in relative poverty in her twilight years. An active member of the Brotherhood’s Coolibah Centre for senior citizens close to the Melbourne CBD, Ms Parker dedicated more than ten years of her life to helping the young and the elderly alike.

Ms Parker married at 17 and was dependent on her husband until the marriage broke down. At age 33, she was given housing and part-time work by the Brotherhood of St Laurence, a charity she has stayed with ever since.

But like many women her age, by retirement Ms Parker had not accumulated enough superannuation to see her through a single year. The only significant contribution she has made was after her parents died and left her a small amount of money, which she injected into her retirement account.

Ms Parker said she imagined her retirement a little differently to how she was living it. “I’d like to have grand kids around me and travel around a bit, tumble from place to place with my family and friends of mine.”

Instead, she has been consigned to renting, and her rent is very expensive. She says she’s about $50 short per week. “Food is very dear,” she told The New Daily.

Links between home ownership and retirement

Ms Parker is living proof that many people are expected to, or have already, arrived at retirement age without the financial underpinnings to enjoy it.

The chief executive of Council on the Ageing (COTA) Australia, Ian Yates, said increasing numbers of people would mirror Ms Parker’s experience. Many would retire without ever owning a house or paying a mortgage. In the past, he said, “a lot of these people went into public housing as renters, but that door has been closed for a long time. We now have a lot of people retiring without significant assets, and the state has yet to come up with a solution”.

“A modest lifestyle starts a little above the pension. A comfortable lifestyle assumes you have some of your own resources,” Mr Yates said.

The 9.25 per cent compulsory contribution would create “part-pensioners rather than full-time pensioners”, as the guarantee “has not been going for long enough and has not been high enough take people right out of the pension levels altogether”, he said. 

In addition, Mr Yates said that many Australians continued to work well into their 70s both out of choice and necessity.

“About 25 per cent of people between 65 and 70 are still in the workforce, just not necessarily on a full-time basis,” he said. Most Australians also confused “pension age” with “retirement age”.

“There is no legal requirement in Australia to retire,” Mr Yates told The New Daily. “It’s actually been illegal to have a retirement age for quite some time. People shouldn’t have to stop working just because they reach a certain age”.

But where does that leave the great Australian dream for people only a decade or two into their working lives? 

If a comfortable and secure retirement is an aspiration, it all depends on how they play the numbers game.

— with Thomas Hunter

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