Retirement seems a too far off to be relevant when you’re in your 30s or 40s – and it seems a lifetime away when you’re still in your 20’s.
There are so many other things you want and need to do with your money – paying off a mortgage, family holidays, a new car, home renovations, weddings and schooling to pay for. The list is essentially never ending it would seem.
To be honest whilst I’ve always been prudent with my super, keeping it together, being mindful of fees, paying attention to how it’s invested – until I had a baby, I’d never really thought about how much super we’ll need and whether we’re on track for a comfortable retirement.
And the reality is that most of us don’t. We’re so busy just juggling the day to day finances that we don’t ever really get the chance to look a little further down the road and see what that looks like (financially speaking).
We tell ourselves that we’re still young and it will work itself out somewhere along the track – everyone retires, they must all work it out somehow right?
Well yes and no. According to the ABS in 2011-12, 50 per cent of retiree couples had an annual income of less than $28,260 a year.
So yes, we all retire eventually, it’s just how we are able to spend our retirement that is the difference.
If you want to know whether you’re on track to a comfortable retirement – you should read this post I wrote on working out how much superannuation you need to retire.
Part of the pep talk we give ourselves about “everything working out” is a reliance on the fact that there is always the Australian aged pension which we can use to “top us up,” if we come up a bit short the day we call it quits on working life.
But let’s have a look at the Australian aged pension for a second.
(As with any subject explained by the Department of Human Affairs website – there is about 1 million separate pages dedicated to explaining how this benefit works on their website).
Here is a basic useful summary for you to save you the trouble.
First of all, by the time we are all likely to retire (that is, after 2023) the qualifying age for the aged pension will be 67 years, not 65 years.
For a couple, the maximum rate of payment for the aged pension is $1,317.40 per fortnight or $34,252.40. Not much right?
Now you can earn up to $288 a fortnight on top of that from other sources before it starts to affect your pension payments. Anything you earn over and above $288 a fortnight up to $2,902 a fortnight will reduce your pension payment by 50 cents in the dollar. Once you clock additional income beyond $2,902 per fortnight, you’re on your own.
There is also an assets test which will impact upon the payment rate you receive. You can read more about that here if you are interested.
However the point I am trying to make is that the Australian aged pension is able to support a lifestyle that is vastly different from what:
[a] income is necessary to do what the average person envisages doing in their retirement
[b] the average person has become accustomed to in their working life
Now the next logical question to ask is…..
Will the Australian age pension exist when by the time we come to retire?
The first baby boomers have already reached retirement age and the big skew they create in the nation’s population profile is going to take a long time to digest.
According to Inside Story, in 2010, three million Australians were aged sixty-five or older, but by 2050 that figure will have reached 8.1 million, a much faster growth rate than for the rest of the population.
They will make up nearly a quarter of the population by that time, and most of them won’t be paying income tax.
So you have to wonder whether the rest of the country can really afford to continue to support the Australian aged pension system in its current form with those demographics.
The government acknowledges this by actively encouraging working Australian’s to bolster their superannuation accounts with tax concessions and incentives like the co-contribution scheme, while forcing businesses to throw more into employee retirement accounts with increases to the superannuation guarantee.
Now it is true that Australia’s superannuation system is designed to supplement the aged pension in providing a retirement income of most Australian’s.
And that superannuation is not the only asset from which Australian’s draw an income in their retirement. However it’s tax effectiveness makes it an appealing investment vehicle for retirement savings and as a result, it is still the single biggest asset class amongst Australian retirees.
You can probably now see the benefit in being independently prepared come retirement. A little knowledge and some small changes performed now with regards to your super can set you apart from everyone else at retirement.
Time is the one thing you have on your side when it comes to your financial future.
The benefit of hindsight is a beautiful thing – but only when time is on your side. Unfortunately for most, it usually comes along all too late in the day when it comes to planning for their retirement.
You don’t have to have all the answers now, you just have to start piecing together bits of the puzzle until you get a picture that is clear enough to act on.
Keep learning, stay informed and take action as soon as you can.