The idea of retirement used to be simple. You worked your whole life and with the help of the age pension or company pension you will have enough money to enjoy a comfortable life, with a few of life’s simple pleasures.
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But that idea of retirement is more suited to retirees some 40 odd years ago. Since then Australia has been changed, politically, culturally, economically and socially and achieving that goal in the future will be more about funding your own retirement without government assistance.
Here we give you a snapshot of retirement in the years ahead and highlight some of the dramatic changes that will need to be made if Australia is to keep pace with countries around the world.
What’s driving changes in retirement?
Greater life expectancy and different expectations for retirement and aged care services will be the driving factors that will change the nature of retirement in the next 20 years.
- More Australians will be living beyond retirement age than ever before.
- By 2035 the average life expectancy will increase substantially.
- A 70 year old woman will live for an average of nearly 21 and a half more years, and a 70 year old man will live for an average of 19 more years.
According to the Australian Bureau of Statistics (ABS), Australia currently has a 3.2 million people over 65. By 2050 this figure is expected to reach 8.1 million.
This increased population of senior Australians will mean there will be a greater demand for retirement accommodation, healthcare and for aged care facilities and services that may not even exist right now.
Chief Executive Officer of RetireAustralia, Alison Quinn, says Australia needs to plan ahead to provide policies to support these larger populations of older Australians in every aspect of their lives.
“We must put in place the policies and plans to ensure senior Australians will continue to have high standards of living, including a high standard of housing and a high standard of accessible and affordable health and wellbeing services,” she says.
How do we fund our retirement?
Concern about the ageing population was raised in the 1970s and this led to the introduction of the compulsory superannuation scheme. But superannuation is proving inadequate to cover the costs of retirement for retirees today, let alone in the future.
A report by the Association of Superannuation Funds of Australia (ASFA) shows that an average couple needs over $500,000 for comfortable living in retirement. But this assumes the couple is getting the age pension, owns their own home and is healthy. It also doesn’t account for a longer than average life expectancy.
Today, most Australians have not saved enough money to retire on. The latest figures in the ASFA report show on average that men retire with accumulated super amount of $197,000 while women have $105,000.
Current funding models for retirement are not sustainable for Australia's ageing population
This is mainly because the current lot of retirees haven’t benefited fully from superannuation. In fact, it won’t be until 2045 when we’ll start to see the first generation with a lifetime of superannuation savings.
“The effects of superannuation are still slowly flowing through to retirees. They didn’t have the benefit of working their whole careers with compulsory superannuation,” says Quinn.
But tax concessions and reliance on the pension are also eating a hole in the federal budget. Superannuation tax concessions are likely to cost the government $50 billion by 2018-19 and this figure could jump to a staggering $100 billion by 2025.
How will funding change?
In the future there will be a shift away from reliance on the pension and welfare and more to self-funding retirement says Arthur Koumoukelis, Partner of Notary Public, Gadens in Sydney.
“We will most likely see more Australians retiring later and some going into semi-retirement and continuing to work in a part time capacity. Some Australians will be working inside their retirement villages because they will be able to be active for a lot longer, even into their 80s and 90s,” he says.
This change has already begun. Australians born before July 1952 can currently access the aged pension at 65. But as part of a federal government plan to raise the age and prevent dependence on the pension, this will increase to 65.5 years in July 2017 and increase in increments again until it reaches the age of 67 years from 1 July 2023. Some say this age should even be raised further to 70 or 72 years.
Another important source of wealth is the family home. Quinn says the current generation of retirees, the Baby Boomers, have benefited from high capital growth but this wealth for many remains largely locked away.
Quinn suggests better use of this asset through incentives and government regulations could free up capital to be used on essential costs in retirement.
“The wealth of most older Australians is locked in the family home – 81% of pensioners own their own home. It makes no sense for the greatest source of senior Australian’s wealth to be locked down as it currently is,” says Quinn.
“Greater innovation and flexibility is needed so senior Australians can access the wealth in their own home, whether it is downsizing to a smaller home and not being financially penalised through pension asset testing arrangements, or to pay for health and wellbeing related services,” she says.
Koumoukelis says the government should consider making the home part of the asset assessment for the aged pension which would free up housing capital for retires but also have the benefit of freeing up housing for young families and reducing housing affordability.
He also says there needs to be a realisation among retirees to spend their superannuation on their own care, rather than saving it to pass it on to their kids or grandkids.
“Superannuation is a critical part of retirement. The biggest issue that people need to understand is that now that you’ve saved your money, you have to spend it. People are confusing their superannuation with a nest egg, something that they give to their kids. They have to get over that hurdle and actually start spending it on their own care needs,” he says.
How will retirees be living in the future?
By 2025 demand for retirement accommodation is set to double in Australia. So how will Australians be living in their retirement considering this larger senior population?
There is likely to be a greater diversification of living options for retirees as well as better facilities and services in existing aged care facilities and retirement villages, as owners and operators adapt to the changing needs of a new generation with different expectations.
Longer life expectancies and more importantly, more healthy years means that Australians will be more active and require more services that accommodate this active lifestyle.
As a result retirement facilities will need to modernise. It’s not just going to be about providing accommodation options anymore, but also a wide range of health and aged services within the traditional retirement village model, such as remedial therapies and exercise classes that a new generation of retirees expect.
“The Baby Boomer generations retiring now have been very privileged, they’ve had free education and good mortgage prices. They have enjoyed a high standard of living during their lives and they won’t be content to accept substandard living arrangements,” says Koumoukelis.
To ensure retirees’ money lasts longer it is also likely that superannuation funds will begin to offer a greater diversity of financial products that are better suited for longevity, such as deferred annuities and insurance products.
How will there be a better continuum of care?
Increasingly there will be new business models for retirement services. Some will integrate into the current and existing facilities, while others such as the group homes model currently popular in the United States, will grow in popularity.
This means retirees will be able to have a continuum of care as their aged care needs change, rather than having to move between different care settings, which can become an inconvenient and costly thing to do.
Residents of aged care facilities will likely receive a higher level of care as more integrated service models will allow for a greater synergy of services. But putting all the services; physical, social and lifestyle all in one place also has the added benefit of taking cars off the road and decongesting urban centres.
Senior Australians are remaining active for longer, changing the nature of aged care
Some retirement villages may offer accommodation, aged care and health care as well as lifestyle options themselves, while others will increasingly call on other organisations to fill this need. Essentially many existing aged care facilities will need to be expanded.
Lack of housing affordability is likely to lead to a demand for more flexible models for retirement that could drive demand for rental communities as more retirees look to serviced apartments and living units as potential high-density, accommodation options.
But a recent report commissioned by the Property Council of Australia says development may not meet the demand. It called for greater state and federal government funding of retirement villages and other retirement housing.
Importantly the report recommended that the government rezone land for the creation of more retirement villages and that includes purpose built homes that are well located and allow retirees to be socially engaged and independent.
John Kingston CEO of James Milson Village says there are several reasons why Australians can expect a higher standard of living in the future.
“Facilities are far more capable of bringing in allied healthcare services so that the person is being looked after in a more comprehensive way. The standards that are employed by the departments also now demand a higher level of care and a higher level of accountability about how the client is looked after in every aspect of their life,” explains Kingston.
“The advent of the building code regulations also means that a lot of the disgusting dangerous buildings some operators had have since been bulldozed so the client is getting a better physical environment to live in. And fourthly, because of higher standards in services like nursing care we can better look after health issues more professionally,” he adds.
How does Australia compare with the rest of the world?
According to the 2016 Natixis Global Retirement Index Australia ranks 6th overall behind Norway, Switzerland, Iceland, New Zealand and Sweden.
In the sub-index ‘Finances In Retirement’ Australia ranks second in this six with a score of 77%. In bank and non-performing loans Australia ranked 8th and in the interest rates category 7th. It also ranked in the top ten for government indebtedness and tax pressures.
Australia’s second best sub-index was performance in health, especially for life expectancy and health expenditure per capita.
A high happiness indicator and air quality indicator was the reason Australia scored a high Quality of Life score of 81%. There was also a decent Material Wellbeing sub-index of 70% that places Australia in the top twenty countries.
Australia has a low rate of inflation which the report cited as giving retirees more purchasing power. But it warned that the countries’ Achilles heel could be its public services sector that could be contributing to a higher level of unemployment.
This includes generous social security benefits such as unemployment payments that contribute to an increasing government expenditure and national deficit.
What are you most concerned about regarding the future of retirement in Australia? Join the conversation below.