Australian Retirement Crisis: When the Music Stops
Australia is on the crest of a demographic tsunami with three million baby boomers set to retire over the next decade. This will put enormous pressure on our health, age care and pension systems.
Currently, around 40 per cent of Australia’s workforce is made up of Baby Boomers (‘Boomers’). With so many Australians retiring around the same time, this will put enormous pressure on the Federal Government’s ability to fund the age pension.
What is the Government’s age pension?
The government-funded age pension in Australia dates back to 1909 when it was determined that financial support was necessary for ageing victims of tough times from the 1890s. At that time the life expectancy was approximately age 55 for men and age 59 for women. The Federal Government set the pension age at 65 for men and age 60 for women. This pension wasn’t a significant financial burden for the Federal Government, as only 4 per cent of the population was over 65.
By contrast today, about 15 per cent of Australians are over 65 and life expectancy has increased to approximately age 80 for men and age 85 for women. For the budget-conscious Federal Government, the Australian financial crisis represents a financial burden in keeping the Federal budget in surplus.
(more on the Federal Government’s Age Pension here.)
Do Boomers have enough money to retire?
Generally, the average Australian doesn’t know how long they’re going to live for. With improvements in health, it’s likely to be longer than most Boomers think. In my experience, having provided financial advice to many Australians in this stage in their life, this uncertainty on how long they will live pushes out their retirement date because they may not believe that they have enough money to retire as we are all living longer.
Many Boomers don’t have enough savings or superannuation to see them through retirement, which means that they have continued to work past the traditional retirement age of 65. But eventually, when they do retire, they’ll place a massive burden on Australia’s financial system.
The Federal Government appears to be fixated on maintaining a surplus budget. However, with a slowing economy, and with Boomers ceasing to pay income tax once they retire, the Government will have to find the money to fund the Boomer’s age pensions and health costs. At the same time, the Government will have to make up for their lost taxation revenue by either increasing taxes for those who are working or growing the size of the tax-paying workforce by importing younger workers.
Boomers are choosing to work past age 65
Boomers who are low-income earners continue to work for financial reasons rather than lifestyle reasons. They would love to retire at age 65, but as explained, they fear that they will outlive their savings.
Boomers who have high income and substantial wealth are also choosing to continue to work past the traditional retirement age of 65, but for different reasons. They are choosing to continue to work in one form or another because they want to keep their brains and bodies active.
More on how we provide financial advice for over 65ers here.
Affordability of retirement is the issue
It is the affordability of retirement that is the problem. It’s creating the pressures on the financial system that we have today. If we look at the workforce participation rate of the people above 65-years-old, oddly, it is the 65-year-olds who are returning into the workforce at a record rate. The rate in which Aussie retirees are returning to work has never been seen before and is being driven by the issue of Boomers having far too much debt to retire and not enough savings.
But the Australian retirement crisis isn’t all bad for Boomers. From the hundreds of Boomers who have met with me for financial advice over the last three decades, the ones who seem to live longer, are ‘luckier’ with their health, and have a happier disposition, are the ones who continue to work after age 65. They generally do this for the enjoyment of interaction with younger work colleagues and customers. So working past age 65 may well be a blessing in disguise for both ‘the lucky generation’, and the Federal Government.
If you’re approaching retirement, or are in retirement already, we want to hear your story. Are you maximising your chances of a happy and healthy retirement? Call us today.