Australia’s Retirement Age is headed higher

Australia is set to claim the mantle as the nation with the oldest retirement age in the developed world following Joe Hockey’s federal budget announcement on 13th May 2014. The new plan will see the retirement age for Australians born after 1966 increase from age 65 to 70 and is set to ensure that by 2035 our age pension age will have reached 70. Retirement Pic1 Australia first introduced the age pension in 1909 which was for males aged 65 years and over. At the time, the life expectancy of a male was 55.2 years making the likelihood of receiving a pension quite small. Interestingly 1909 also marked the advent of corporate income tax in Australia so where there’s a benefit payment there’s also a tax!   The qualifying age for the pension today for both men and women is 65 and the life expectancy for men is 80.6 and 84.8 for women. We are living on average 25 years longer than our ancestors of 100 years ago but the system in place & eligibility criteria is very different. Today it is possible for a couple aged 65 years and over to have assets of up $1,126,500 (excluding their family home) and be eligible to receive a part age pension.   There is a key demographic shift taking place in our economy as the baby boom generation closes in on retirement. The ratio of working-age Australians to people aged over 65 currently stands at 5:1. This ratio is expected to decline to under 3:1 by 2050 as the baby boomers reach their retirement years. To give give this some global context, in Japan, a nation widely recognised for it’s ageing population, they currently has a ratio of just under 3:1. The economic reality for Australia is a lack of tax-paying workers to support the social security needs of our baby boom generation.   In addition to our immigration policies to grow the working population, the key strategy of government has been the promotion of a semi or fully self-funded retirement using superannuation as the primary retirement funding vehicle. The tax concessions available for people accumulating wealth inside super and people drawing an income from their super (both pre & post retirement) are very attractive. The maximum rate of tax on investment earnings on assets held within the super is 15% falling to 0% when a person is aged over 60 and drawing an income.   It’s important to note the key difference between the age pension age and the age at which people can access their superannuation for retirement funding. The table below illustrates that most people can access their superannuation benefits from age which is sooner than age pension age 65 (increasing to 70) Retirement Pic 2 Your AJ Financial Planning adviser will be able to assist you to not only maximise the tax advantages of your super assets, but also structure your affairs to provide maximum lifestyle & income flexibility both while building wealth & when drawing an income in retirement.                 

What age is the correct age to retire?

Two weeks ago, I attended a medicate specialist appointment with a neurologist to discuss a CT scan of my brain and check everything was ok.
 
Despite his enormous IQ, his bedside manner certainly needed some improving. Lets just say my 4 year old son had better social skills than this medical genius! As I walked into his consulting suite, his opening remarks were a smart statement and question around why was I not retired if I was a financial planner? I looked at him a little surprised as I was there to speak to him about my health rather than discuss financial planning matters. However, I pushed aside my urge for normal pleasantries, as I could tell quickly that he was wanting to engage in some type of banter. So I replied…. …..If I was to retire at my current age, then I would look to sit on the couch for the next 49 years based on my current life expectancy…..that’s a lot of TV watching don’t you think?….I think I might get bored! Thankfully the neurologist didn’t have another smart comment to reply, but it certainly raised an interesting question when it is time to retire?
 
In a couple of weeks time I head off to the annual general meeting at Berkshire Hathaway to hear Warren Buffet speak and provide some valuable insights about the economy and the markets etc. The interesting thing about Warren Buffet’s board of directors is that of the 13 board members Warren is 83, Charlie is 90, David Gotesman is 87, Donald Keough is 87, Thomas Murphy is 88, Ronald Olson is 72, Walther Scott is 82, and the rest are aged between 50 and 60 years of age. Even if I look at the next generation of successful entrepreneurs like Eton Musk who is aged 43 and has a net worth of $8.2 billion, why does he not throw it all away and sit on a couch and watch TV for the next 44 years? The names I have listed above in the eyes of this medical specialist would each have sufficient resources to buy any island in the south pacific and live out their remaining years basking in the sun….so what really causes these people to work when financially they don’t need to?
 
The answer is simple – they enjoy their work! Buffet often remarks that he feels 20 years younger than what is stamped on his drivers license and he skips to work each day!  In other words one could say that he truly enjoys his life’s purpose and has so much more to give! If you are not into the high powered executive life, you only need to travel 10 hours to Japan for another example.
 
The community called the Okinawans are a rare group of Japanese people with more people aged over 100 years than anywhere else in the world. The fascinating finding here is that most of the Okinawans work well into their 90’s doing traditional work like fishing and faring etc. Retirement can be defined (yes I actually looked it up) as to ‘remove’ or ‘withdraw’. As such, is it possible that one might just not want to remove or withdraw from what they do? What if one was enjoying the ride of life and work and didn’t want to get off? Similarly, what if we put this in the perspective of a musician that never wants to stop playing their music and the thought of never playing agin would bring them great sorrow. Are musicians meant to stop once they are at a certain point or certain age? No, its a part of them. Equally for those listed above, working is exactly the same as it is their passion.
 
So next time you are thinking about retirement, you may start to think differently now to the opinion of my neurologist as its only time to retire when you feel its time to withdraw from what you are doing. If you need help too in defining what the next phase of your life might look like, feel free to contact AJ Financial Planning. Oh….by the way, my results came back all clear  – just a false alarm!