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Why most Australians will retire poor

Published on 18th May by Fiona Bennett

Why most Australians will retire poor

If you thought that your retirement would be a comfortable one then you need to seriously think again. With people living far longer than they used to and changes to the pension and superannuation, more Australians will have to face the prospect of working beyond 70 years of age, simply because they will be too poor to retire otherwise.

The current retirement age to be eligible for the Age Pension is 65 years; however, this is set to rise by six months every two years until 1 July 2023 to 67 years.

What factors are leading to more Australians retiring poor?

There are many factors leading to more Australians retiring poor. Here are six main factors:

1. Rising life expectancy

Firstly, Australians are living much longer than they used to, helped by better healthcare and education. We are now ageing healthier and have a better awareness of a healthy diet alongside the importance of regular exercise. However, although we may live past the grand old age of 100, this also means that we need to stretch our wealth further too, to ensure we don’t run out of cash. Because of this factor, more of us will have to work beyond 70 to continue building up our savings.

According to the government’s intergenerational report, by 2055, Australians’ life expectancy will rise to 95.1 years for men and 96.6 years for women. That’s potentially 30 years or more we need to save for.

2. Superannuation doesn’t build as quickly on lower incomes

Anyone on a lower income will find saving for retirement particularly difficult, due to their superannuation savings not building up as quickly compared to those on a higher salary. In fact, even if you manage to save up $1 million in super, this would still only achieve around the same amount as the government pension.

3. The Age Pension will not be enough

Relying on the Age Pension alone will involve a daily struggle to make ends meet and simply survive. You can say goodbye to those dream holidays and owning a car at retirement. Instead you will have to get by on public transport and basic brands and essentials.

Currently you need to be 65 years and older to be eligible for the Age Pension, which is set to rise to 65 years and 6 months from 1 July 2017. A couple on the Age Pension will receive $1,322 a fortnight or $34,373 per annum, which is far less than the $59,808 per year a couple would need to retire to lead a comfortable retirement.

4. Low income growth

Incomes are also growing at a much slower rate compared to property prices. This makes it even harder to purchase a property or build up our savings. However, there’s good news for any first home buyers looking to save up a deposit for their first home. From 1 July 2017, you will be able to use your superannuation towards your home purchase. First home buyers will be able to put a maximum of $15,000 per annum into their super, or $30,000 if pooled with a partner. These funds will be taxed at a lower rate of 15%, but only applies to funds paid above the 9.5% super guarantee currently in place.

5. Higher indulgence

Another reason why many more Australians will retire poor is down to over-indulging in life’s luxuries. We now live in a modern world where we want to travel abroad, dine at fancy restaurants and buy the latest gadgets and technology. And, why shouldn’t we? We have easy access to credit cards and it’s far too easy to run up huge debts. Our need to buy nice things and treat ourselves is all well and good, but if it’s taking money away from your retirement fund then this will affect your ability to save enough money to retire earlier and live comfortably.

6. Lack of education

Do you know how much it will cost you to retire? The vast majority of Australians don’t realise a couple will need $34,687 per year to lead a modest lifestyle, whilst to lead a comfortable lifestyle a couple will need $59,808 per year for those aged around 65, and that’s at today’s rate. Will you have that amount of money when you retire and how will you come up with over $1 million?

How can you avoid retiring poor?

So, how can you avoid retiring poor? If you are solely relying on your superannuation or Age Pension to carry you through retirement, then you need to start worrying and make a Plan B. Who knows whether there will be any money left in the pension or superannuation pot when you finally reach retirement age.

To avoid retiring poor you need to take action today, ideally in your 20s. Putting all your money in a savings account, won’t do you many favours, especially when interest rates are at an all-time low. You therefore need to make some smart investment decisions that will help build your wealth and make your money work as hard for you as possible.

Invest in Property

Fortunately, investing in property is one such means of building wealth. Property tends to be less volatile compared to other investment types such as shares and is generally easier to understand. We all need somewhere to live, and it’s easy to relate to property. You also want to own your own property at retirement rather than renting, to avoid further expenditure.

Owning just one investment property alongside your own home though will not avoid you retiring poor, unless you have a large amount of savings elsewhere. You need to take the time to build up a successful property portfolio which has numerous different properties, in different locations and at different stages of the property cycle. Each property needs to be generating good rental yields and capital growth to ensure you continue to build up your wealth and live off this through retirement.

By investing in property in high growth areas and off the plan, you can benefit from higher capital growth as well as potentially make money due to longer settlement times, without you having to start paying a mortgage.

Get in touch

If you want to avoid retiring poor and willing to take action today then our team of expert Property Consultants at iBuyNew can assist you with building a successful property portfolio. This will not only help you retire comfortably, but could also see you retiring earlier, depending on how old you are when you start investing. Sounds great, doesn’t it?

Don’t leave it too late and end up with the misfortune of living in hardship. Start planning the retirement you deserve today with the aid of property.

Call iBuyNew today on 1300 123 463 to find out more about property investing to reduce the likelihood of you retiring poor.

Fiona Bennett

Fiona loves to keep our clients engaged and up to date with the latest property news and trends and regularly provides updates through our social media channels.

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