Healthy transition to retirement
Australians may need to work longer to save more for retirement and a longer life, but Paul Sainsbury asks whether they will be healthy enough to work until 70.
Every working Australian has thought about their retirement at some point. We all have a dream or vision of what life could be like after work — even if it is still decades away for some of us.
But the reality is that our retirement may not be what we think if we do not have enough in savings to fund it.
AMP and the National Centre for Social and Economic Modelling (NATSEM) recently launched a report that uncovers one of the key hurdles stopping Australians from saving enough for retirement — their health.
Against a backdrop of increasing life expectancy and a proposal to increase the Age Pension to 70 years in 2035, the report, ‘Going the distance — Working longer, living healthier', looked at how Australians age through their 60s and whether they would be healthy enough to work longer.
What we do know for certain is that Australians will continue to live longer. We now have one of the highest life expectancies in countries among the OECD (see graph 1), and it is expected to increase well into the 90s over the next 40 years.
On the surface, longer life expectancy is welcome news. It means we will have more time to pursue the things we are passionate about, whether it is spending more time with family, travelling the world or contributing to a cause.
The catch is that longer retirements cost more, and at present, the reality is the majority of Australians will not have enough savings to live comfortably in retirement.
So it is likely for many of us we will have to work longer to save more for a longer retirement. At the very least, some of us may need to stay in the workforce until we qualify for the Age Pension at 70 years. This is a lot longer than the current average age of retirement in Australia — if we look at the last five years, men retire on average at 63 and women, 59 (see graph 2).
The thought of staying in the workforce for these extra years will not be welcome news for many people. It also raises some confronting questions, in particular, whether we will be healthy enough to keep working until we're 70.
Health will be a major factor in whether we will be able to work in our later years. What we know from the research is that nearly half of all Australians currently in their forties and in good health are likely to see a decline to poor health by 2035. And those of us in poor health are much less likely to be employed and saving money in our 60s, presenting a potential problem when we consider most will need to stay in the workforce longer.
By getting the right advice and saving more in private savings and superannuation, people will be better placed to support themselves financially in their 60s, especially if they need to reduce working hours due to health.
Not only does this raise the question of health and finance for each person to consider individually, but it also shows that we must think carefully as a nation about the approach to the later years of working life and retirement.
Reaching a certain age should not mean we need to leave the workforce entirely. Currently, 83 per cent of men and 92 per cent of women over the age of 65 are no longer working, which is a significant increase from people aged 60-64 where only 40 per cent of men and 60 per cent of women are not working.
A smooth switch
Rather than having a strong line in the sand on an age to leave the workforce, retirement should be a transition phase with reduced levels of work that gives us more time to focus on our health and wellbeing.
We know that the concept of retirement has fundamentally changed for people, and trying to define retirement by a point in time no longer makes sense.
Funding ourselves through the different stages of retirement is important, but so too is our health and the ability to continue to actively contribute through work or volunteering.
As we all know, financial advisers play an incredibly important role in helping Australians plan for their future, so we can all aim to live a quality life in retirement. The findings from the report provide some important context on the future of retirement and highlight the value of seeking financial advice to help us reach our goals.
For most people it is hard to think about the future as being much different to today, and in their minds if there is something they should be doing to prepare for it, which of course we know there is, they want trusted advice to tell them and show them they should be doing.
We know there is no quick solution to overcoming the shortfall in Australia's retirement savings. We will need to work longer to save for a longer retirement.
As it is the majority of Australians who are 65 in 2035 will not have enough superannuation to retire on. But what we can do is start to encourage more people to start thinking about the later years of working life and retirement.
What is most important is that there is no substitute for good planning. By getting the right advice and saving more in private savings and superannuation, people will be better placed to support themselves financially in their 60s, especially if they need to reduce working hours due to health.
Aside from the importance of financial advice, there is an important role employers can play to help re-design the workplace of the future so that older workers can stay at work for longer and transition to retirement in a way that suits them, while building retirement savings along the way.
Not only does this provide more options for older Australians, but also helps the nation harness the skills and knowledge that would otherwise leave the workforce. Doing this is good for Australians, and good for Australia.
So while there is work to do in making the workforce more adaptable for a transition to retirement, it also highlights the important role financial advice plays in helping Australians plan for their futures. The first step in overcoming this challenge is asking ourselves: how healthy will we be in the later years of our working life?
Paul Sainsbury is the chief customer officer at AMP.
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