Today’s 30-year-olds may need to work 5 years longer than their parents to save up enough to retire comfortably at 70.
Deloitte reports today that 30-year-old men need $1.58 million in savings for a comfortable retirement, while women need $1.76 million on average, to fund an extra three years of life.
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The Australian superannuation industry defines a comfortable retirement as one that includes funds for “a good standard of living through the purchase of such things as: household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally international holiday travel”.
Today’s retirees are eligible to receive a government pension from the age of 65, but the Government has shifted the retirement age to 67 for those born after July 1952 due to budgetary pressures from an ageing population.
The Government’s recent “Superannuation Guarantee” program will also boost how much money companies need to put into their employees’ retirement funds from 9% last year to 12% by 2020, but that still won’t give the average Australian enough to retire independently on, Deloitte says.
Deloitte notes that today’s 65-year-old men are expected to live to 84 and women to 87. This will increase by a year for both genders by 2056.
“Consider a worker currently aged 30 with a salary of $60,000 and a current balance of $27,000,” Deloitte reported, referring to the ABS’ median salary figure and AMP’s average superannuation balance figure.
“Our projection estimates that this person will have $1.1 million on reaching age 65 in 2048 (in future dollars). Will this be enough? Our projection shows that an account balance of $1.1 million is expected to last until 94 under the modest retirement standard and only to 77 under the comfortable retirement standard.
“We estimate that to afford a comfortable retirement standard covering life expectancy would require retirement benefits (in 2048) of $1,580,000 for a male, and $1,760,000 for a female – a female is expected to live an extra three years.
“This would require an additional contribution rate of 5.4% and 7.5% respectively, on top of the [Superannuation Guarantee] rate.“
Australian retirement funds currently hold about $1.6 trillion in assets, a pool that is expected to grow to $7.6 trillion by 2033.
According to Deloitte, the Government’s recent decision to defer the retirement age to 67 will increase the 2033 asset pool by $400 billion.
“If it were possible to defer retirement age by five years to age 70, another $1 trillion would be added to the system. This will bring the total pool of superannuation assets to $8.6 trillion,” said Deloitte Actuaries & Consultants partner Wayne Walker.
Walker noted that not everyone would be able to spend extra time in the workforce and the jobs would need to be available under such a scheme.
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