Are we retiring too early?
In 1909, the retirement age for an Australian man was set at 65. The average life expectancy for an Australian man in 1909 was 59. That is, if you managed to beat the odds and live longer than those around you, you were rewarded with the opportunity to retire.
The retirement age has basically remained the same for over 100 years. However, whilst retirement age has remained unchanged, life expectancy has not. Today we can expect to live to 82. With much longer life expectancies and an ageing population, does it still make sense to keep the age of retirement at 65?
The cost of longevity to tax payers
Australia’s population is ageing. The rate of ageing is set to increase in the coming decades. In 2012, there are a little over 3 million Australians aged 65 and older. At the current rate of growth, by 2055 there will be 7.5 million Australians aged 65+.
In 2055 this group will represent 26% of the country’s population (in 2005, it was just 13%). This is why the government should be keen to increase super contributions. This is why the government should be keen to ensure that most retirees have sufficient super savings to fully fund their retirements. Obviously, the greater the percentage of this 7.5 million who are relying on the aged pension, the greater the burden on the government. Effectively, this means the greater the burden on Australian businesses and those Australians still in the workforce.
40 years of industry, 17 years of boredom
Our brains are like muscles. They need regular exercise to remain healthy. After a 40-year career, most of us look forward to a fulfilling retirement of socialising, sports and hobbies. The reality for many is that retirement is a let-down. Where we were once respected experts in our chosen industry, in retirement we find that few really care for our opinions.
If we reminisce about ‘the firm’, family members tune out. If we proffer an opinion about a topic on which we have accumulated reasonable knowledge, it is dismissed as no longer relevant. Disease and health issues prevent us (psychologically, if not physically) from participating in the sports and hobbies we expected to indulge in when retired. We find ourselves spending more and more time reading (presuming we haven’t suffered macular degeneration), watching TV or sitting and talking about the good old days. There isn’t a family in Australia in which there hasn’t been, at some stage, a patriarch or matriarch whose boredom hasn’t been cause for concern. The truth is that, for many of us, retirement slowly kills us.
Given all of this, the question has to be: Does it still make sense to retire at 65? For most fund members, recovery from the GFC has been slow. We are only now back to where we were in 2007. The government keeps tinkering with super, but there is still the opportunity to make significant contributions and use salary sacrifice to accelerate the growth in our super savings. Even staying in the workforce an extra 5 years can have a really positive impact on the quality of life in retirement.
The government should be doing more to encourage mature employment. Businesses should value the knowledge that exists in the heads of older staff members. And we, as individuals, should use whatever means we can to stay in the work force and to keep building our super savings beyond age 65.
Afterall it is not 1909…