Australia enjoys one of the highest life expectancies in the world. And we’re not just living longer but also enjoying healthier lives than ever before, which is great news for those looking forward to enjoying their twilight years.
But with Australian life expectancy up to around 82 years on average, and an ageing population in general, we are sitting on a time bomb when it comes to the Age Pension.
By 2055, the number of Australians over the age of 65 will have doubled to 8.9 million. That is equal to one-fifth of the population. Pensioners made up just one-seventh of the population in 2017 and just five per cent of the population in 1927.
While retirement used to be a short affair, the latest figures, from 2014-2016, show that Australian men at age 65 could expect to live another 20 years and women 22 years, which is seven years longer for both sexes than in the 1960s.
At the very least, we should be able to enjoy those years of retirement following decades of work, with enough money to live comfortably and without the fear of running out of funds.
The financial facts
With an ageing population, what does that mean for our finances? Internationally, older people are working beyond the age of 65 to keep earning money. According to the Australian Institute of Health and Welfare, older Australians had a workforce participation of 13 per cent in 2018, compared to just eight per cent in 2006.
A report by the World Economic Forum found that the world’s six largest pension systems – which includes the US, UK, Japan, Netherlands, Canada and Australia – will have a joint shortfall of US$224 trillion by 2050, equalling about US$300,000 per person.
In Australia, the 1992 introduction of superannuation savings has helped alleviate the crisis somewhat, but there are still those that are relying entirely on the Age Pension. For a single person, the pension represents a little under 30 per cent of male total average weekly earnings, meaning they are existing on just 30 per cent of the average Australian’s income.
The government was also considering – until it ditched the unpopular policy ahead of elections – raising the retirement age to 70 to help plug the pension gap.
That is not to say people haven’t earned money during their lifetime, or that they have been careless. We all need to become better at making our money work for us, ensuring that the funds and assets we do have are being fully optimised.
A new pension plan
Today, around 76 per cent of Australians aged 65 and over own their own property. It is their greatest asset and is often held up as one of the reasons why they can exist on less money, as they don’t have mortgage or rent payments
But your property can do much more for you than simply provide a roof over your head, you just have to make the most of it.
How does it work?
By using the equity of your home – or even a cash deposit – you could purchase your first investment property to generate a monthly income.
From there, you can begin to expand your property portfolio step by step, using the equity of each one for your next purchase, slowly building up over the years for a future retirement.
A smart retirement
You don’t want to retire with high debts. So, as you come to giving up work, you simply sell half the properties in your portfolio.
You can then enjoy a fulfilled retirement living off the equity without worrying about pension pots running out.
The added bonus is that the portfolio can be passed on as an inheritance, helping the next generation also enjoy financial security.
Retirement without worries
By the time we retire, we have often spent decades dedicated to our jobs, saving money and planning for our twilight years. The least we can hope for is to enjoy them without worrying about our pension pot running out.
But with the World Economic Forum statistics showing such a dramatic shortfall in the world’s six largest pension systems – equivalent to US$300,000 per person – we need to think of other ways to use our money more effectively.
For many, property investment could be more productive than a pension and provide a great lifestyle in your retirement. Get in touch today and find out how you can start to build up a property portfolio that will help you enjoy the comfortable retirement you deserve.
