Real Wealth Opinion
Posted on April 11th, 2016 at 9:23 AM by David Orth
For most Australians the idea of a happy retirement is sitting on a beach sipping cocktails. For others it may be enraging truck drivers with the other Grey Nomads and seeing our beautiful country. You may dream of seeing the world, taking cruise ships around the Mediterranean or spending your time just relaxing. After all, you’ve worked a lifetime and you deserve it.
According to ASFA (The Association of Superannuation Funds of Australia), for a comfortable retirement, an individual should save $545,000 and a couple should have $650,000 by retirement.
ASFA has researched into exactly what you should expect from your life post retirement, depending on how much money you have when you retire. According to ASFA, a comfortable retirement is defined as:
You will be able to take one annual holiday in Australia, have private health insurance, drink bottled wine, own a reasonable car and be able to replace your kitchen and bathroom over 20 years.
Don’t take what we are about to say next as being critical of the work ASFA is doing. We must applaud them for trying to come up with some sort of benchmark.
But ASFA’s comfortable retirement standard might not be the best benchmark considering the looming changes to the Age pension. The problem with the comfortable retirement definition is that is assumes that you will have a partial age pensions and that you own your own home.
So what happens if you don’t own your own home?
What happens if you’re not entitled to the age pension by the time you retire?
Let us clarify that last question. We all know that Australia’s population is ageing. Come 10-50 years’ time our population will have a greater number of senior citizens than it does now. Therefore placing further burden on the already non-sustainable pension system. This in itself is a topic of hot conversation, with many major news outlets reporting this very real problem:
At some point in time, the criteria for eligibility for the age pension must be constrained. How will this happen we can only speculate. We guess the government is going to conjure some sort of system that determines if you have had the ability to save but didn’t – and therefore aren’t eligible. When increased constraints are implemented nobody knows either - but we do know it has to happen sooner rather than later.
Currently, the maximum you’ll receive for an age pension is $873.90 a fortnight. According to ASFA, If you are planning on relying on the age pension when you retire it means:
You can no longer afford a car, can only afford home brewed alcohol if any alcohol at all, dressing in very basic clothing, no air-conditioning, limited heating in the winter and not having the ability for home maintenance like fixing a leaking roof. We know this definition is true, maybe almost a little generous.
Then comes the $873.90 a fortnight dollar question – what happens when you’re not eligible and cannot work anymore – crawl into a gutter and die? That’s a harsh statement but a legitimate question.
Tough decisions need to be made and almost nobody will be happy about it. The only ones that won’t care are the ones who planned early; those who take superannuation seriously and acted when they could.
The sad reality is Australians just don’t care. According to the 2014 Westpac super report, almost one in three would prefer to find $200 in cash than $2,000 in super. The same survey indicated people are more likely to put effort into finding their mobile phone than finding lost super.
Australian’s are starting to worry and that’s a good thing. At this very moment in time being proactive rather than reactive is paramount. The age pension is not retirement; it’s barely living and make no mistake changes are coming.
Westpac Lost super report:
ASFA retirement standard: