Don’t wait until you are 80+?

Are you willing to work until you are 80 or older?

Super Equity was established with the purpose of helping people achieve their goals in retirement. Goals that many don’t even think about when they are in their 20s and 30s.

But these are the years you need to be planning for retirement.

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It’s a hard reality to swallow for some. But did you know, if you gave up a cup of coffee every day in your 20s and put it into savings for your retirement, it could total the cost of a new car in retirement?

Many workers in their 20s and 30s, like a client I recently began working with say, “it’s hard to prioritise superannuation over every day costs like rent… and holidays.” This is not uncommon.

It’s worrying, because let’s face it, the Australian population is living longer. Between now and 2050 the number of older people (65 to 84 years) is expected to more than double. Very old people (85 and over) is expected to more than quadruple, from 0.4 million people today to 1.8 million in 2050.

In contrast, the number of children is expected to increase by 45 per cent; prime-age working people is expected to increase by 44 per cent. This means that, the proportion of people aged 65 years or over is projected to increase from 13 per cent in 2017 to 23 per cent by June 2050. At the same time the proportion of working-age people in the total population is expected to fall by 7 per cent to 60 per cent. As a consequence, there will be relatively fewer people of working age to support an increasing number of older Australians.

What does this mean? Population ageing will intensely increase pressure on health care, age-related pensions and aged care.

My new client, who had eight different funds (also not uncommon) and was paying multiple fees on each fund before coming to Super Equity, said, “It’s easy to ignore it all. To push it out of your mind. It’s easy to say, ‘save more money,’ but when you can’t even buy a house now, why would I want to save for something in 40 years’ time?”

This is a popular attitude. The reality is, that the right superannuation strategies implemented now, can greatly improve your chances of being able to retire, when you hit what we now refer to as ‘retirement age’.

In their book The 100-Year Life, Linda Gratton and Andrew Scott consider the implications of longevity on retirement scenarios for different generations. Their modelling demonstrates the post-war generation could achieve a reasonable retirement income with affordable savings during their working lives, supplemented by corporate and government pensions.

However, someone born in 1971 with a life expectancy of 85 and retiring at 65 would need to save about 17 per cent per annum to retire on half their final salary, assuming they get a modest aged pension from the government. Quite confronting considering Australia’s compulsory super rate is 9.5 per cent per annum and the Inter-Generational Report predicts someone born in the early ’70s will live closer to 90.

For the younger generations the current system becomes unworkable. In Gratton and Scott’s modelling, a person born in 1998 with a life expectancy of 100 and retiring at 65 would need to save 35 per cent of their working income to retire on half their final income. At 9.5 per cent annual contributions, a young person will need to delay retirement to at least their 80s to retire on half their final salary. Still assuming a modest aged pension… which is not guaranteed.

You need to ask yourself if you’re willing to work until you are 80 or older. Are you?

This is all summed up nicely in the words of my new client:

“I had to do something. When I sat down with Tracy and talked about what we think retirement is and the reality of what it will be, I realised that I had to get my act together now. And I’m so happy that Super Equity is putting strategies in place for me to be well-positioned. I am doing something about it all rather than just sitting by and hoping I get rich.”

Contact us today  – because we’re not willing to work until we’re 80, and are guessing you’re not either.

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