Mar 16, 2024  | Tags: Retirement, retirement planning, Superannuation

Our insights

The concept itself is one that constantly changes as we age.

Young people starting out in the workforce are more likely to view retirement as a distant moment in time – a day they hand the company keys to someone younger and walk out the door with a ‘golden handshake’ and a nice nest egg to fall back on.

They are also more likely to have idealistically attached a particular age to that date.

But as we age and our circumstances change, our views about retirement are likely to change with them.

Many people edge into retirement slowly, reducing their work hours while still remaining in the game.

Keeping their mind active while still earning an income serves dual purposes.

Others are not so lucky and are forcibly retired before they are ready.

Just as our views about retirement change, so too inevitably do the rules regarding Australia’s purpose built retirement plan – compulsory superannuation.

It’s a full-time job staying abreast of the latest laws and regulations to ensure your super is working hard enough for when the day comes that you need to rely on it.

And those laws will continue to change as the future of retirement takes on a different look.

It is inevitable as the country caters for the ever bulging number of older Australians who live longer and demand more from their superannuation.

The history of retirement

Retirement is a concept born in the early part of the 20th century.

Before then, people worked until they no longer could, often to the day they died.

But in 1909, the Australian government introduced an ‘old age’ pension for people 65 years of age (later reduced to 60 for women).

Only around half the population was ever paid a pension because life expectancy then was much lower.

Concerns about Australia’s ageing population were first raised in the 1970s leading to the Keating government introducing the Superannuation Guarantee (SG) in 1992.

It dictated a 3% contribution from employers but that figure has risen steadily since.

It now sits at 11% and will reach 12% in 2025.

By 2026, employers will be required to make superannuation contributions on behalf of their employees each day they are paid rather than quarterly as is currently permitted.

Other recent changes have largely been designed to encourage people to make their own personal contributions to their super funds in exchange for a tax saving, and allowing lump sums of up to $600,000 for couples over 55 downsizing their homes.

Historically, Australians have envisioned their retirement as being funded by a combination of an aged pension and superannuation.

But in accordance with Keating’s original plan in 1992, the future of retirement is set to change towards more of a self-funded model.

Drivers of change

Baby boomers have been retiring for more than a decade.

But next year, the first Gen Xers turn 60 and will be able to access their superannuation savings.

It is this group that is expected to change the face of what retirement looks like in the future.

Gen Xers born in 1974 and entering the workforce in 1992 will be the first Australians to have worked their entire life with the superannuation guarantee.

They stand to benefit from superannuation balances significantly higher than most of those who have gone before them.

Many will have benefitted from buying property well before recent booms that have put it beyond the reach of most young Australians.

They can be expected to fund their own retirement through a combination of their superannuation, their accumulated assets and their desire to continue in the workforce to some degree. 

The Australian Bureau of Statistics predicts the number of Australians aged over 65 will rise from 3.2 million to 8.1 million by 2050.

This group will push the demand for retirement accommodation, aged care facilities and healthcare services to levels never before seen in this country.

Superannuation products

Many people think that when they retire, they are handed a lump sum from their superannuation fund.

While this is possible, the smarter approach to retiring is to take advantage of a superannuation product that works for you.

This may involve one that provides you with an income while the balance continues to grow, hence making your nest egg go further.

Superannuation funds are likely to tailor their business towards the needs of this emerging group with products like deferred annuities coming into vogue.

Retirement living and aged care packages could also be explored.

The government could also consider ways retirees can access equity within their home to help pay for their retirement.

This may involve allowing them to downsize their homes without penalising them through pension asset testing, while having the added bonus of freeing up more housing.

Other mechanisms such as reverse mortgages, giving homeowners an income stream drawn from the value of their home, have historically won little favour in Australia but may deserve a rethink.

There also needs to be a shift away from the intention of leaving superannuation as an inheritance and towards spending it on what it was designed for – paying for their retirement.

Investing for success

One thing is for sure - the future of retirement will mean not relying on super alone. Diversifying investments across asset classes will become increasingly important, particularly if we continue to see volatility in markets in the years ahead. 

Get advice today

While the understanding of retirement products is on the rise, a 2021 survey revealed that nearly a quarter or 23 per cent of Australians aged 55 and above didn’t understand their options.

This is cause for great concern with the ever-growing need for Australians to make wise decisions about how to fund their retirement.

Rising inflation has quickly eaten into the nest eggs of new retirees making it more prudent than ever to be well versed on the best course of action when planning for the future.

A 2023 report released by Vanguard indicated that 44 per cent of people who sought professional advice about their retirement were extremely confident or very confident about their futures.

This compared with just 25 per cent of people who didn’t seek professional advice.

You only retire once so why gamble with everything you’ve worked so hard for?

Make sure you are prepared for what the future of retirement looks like.

At CWM, we pride ourselves on leading our clients into the future with structure, financial stability and confidence. 

Contact us today to discuss all of your financial needs and concerns.

Written by Kerryn Shaw

The information contained in this article is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.

Taxation, legal and other matters referred to on this website are of a general nature only and are based on Calder Wealth Management’s interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.

Calder specialises in wealth management with a focus on advice, investment, sustainability, insurance and finance.