Living longer, working longer and super balances larger

Australians with the best life expectancy in history will have to work longer in order to be able to fund their retirement. But research has found only half of all working Australians will be healthy enough to work in to their golden years.

The latest AMP.NATSEM report, Going the distance: Working longer, living healthier, has found the majority of Australians have less than a 50 per cent chance they will still be working and in ‘good health’ in 2035, when they are aged between 60 and 74 years.

While ‘work longer’ may become the new retirement strategy for many, backed by the Australian government’s plan to increase the pension age to 70 by 2035, it may not be a viable solution. In fact, the AMP.NATSEM report shows as the number of older working Australians increases so too will the number of people in the workforce affected by conditions such as heart disease, arthritis and osteoporosis.

So what can people do to make sure their super balances hold up in case their health gives out?

Vital to funding a comfortable retirement is building superannuation consistently throughout a person’s career – from the first job through to the retirement send-off.

Here’s some things people can do to ensure there’s enough in the retirement kitty to fund a healthy retirement:

In your 20s: At this stage of your life, you can generally take on higher risk investments, so you might consider asking your super fund to allocate at least 50 per cent of your super in a high-growth category which aims for returns over the long term. At this point, time is on your side which gives you the opportunity to invest and recover if things financially don’t go to plan.

In your 30s: Salary sacrificing can reduce the amount of income tax you pay and will boost your super balance – but limits apply. The fundamental principle here is the sooner you get your money into your super fund, the sooner it can begin working for you and, over time, the earning power of that money will compound and grow exponentially.

In your 40s: This is usually your peak earning decade, but it can also be a high-cost time of life due to school fees and mortgage payments. If you are in your 40s, a financial goal should be to pay off your house debt before retirement.

In your 50s: This is a good time to assess your super balance and determine whether it can support you for the duration of your retirement. Financial advisers will generally recommend the fund retain some exposure to high-growth markets in order to maximise potential returns.

In your 60s: The transition to retirement strategy offers an opportunity to put cash into your super while also deriving significant tax benefits. Salary sacrificing some of your annual income and swapping it for a tax-free super income stream if you’re under 65 years makes good sense. The over 65s may want to look at part-time work to lengthen their working life and earning ability before tapping in to their super.

By AMP financial adviser Richard Bejah CFP®
 * Richard Bejah of FinancialPartners (Tas) Pty Ltd are authorised representatives and credit representatives of AMP Financial Planning Pty Limited, Australian Financial Services Licensee and Australian Credit Licensee

This editorial contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider you financial situation and needs before making any decisions based on this information.