While the Age Pension qualification age may rise to 70 years by the year 2035, women have less chance than men of working beyond the current pension age of 65.
That’s because, as the latest AMP.NATSEM report points out, their health generally deteriorates after 65 and age discrimination is becoming an increasing problem. One in five women aged 65-69 in 2035 are predicted to be in fair or poor health – this means many won’t be physically or mentally fit to work to 70.
The Working Longer, Living Healthier report also found most (72%) Aussie women in their forties today who are currently in fair or poor health will be unemployed when they are in their sixties.
If you are not on track for a fully self-funded retirement then planning how you’ll bridge the gap between when you might be forced to retire and when you are eligible to apply for the Aged Pension is important. Here’s what we can be doing so we can enjoy our golden years without so much financial stress:
Have a solid plan in writing
The Government simply can’t provide a safety net to comfortably support all of us in retirement – we have an ageing population and the cost to the country is only going to continue burgeoning. The Age Pension is designed to only provide the bare minimum to help cover the most basic costs of living. So if you don’t want to spend your golden years with constant money worries, you must have a plan that you actively manage to save for your own retirement.
Start as early as possible
It is human nature for young people in their twenties and thirties not think about retirement in favour of their more pressing daily needs like buying a house and building a career and family. But the earlier you start growing a nest egg the better because of the power of compound interest – the seventh wonder of the financial world. Don’t fall into the trap of thinking that you have plenty of time until you retire – you could miss out on harnessing this power.
Contribute more than the minimum
If you’re simply relying on the 9.5% superannuation that your employer contributes on your behalf from your pay, it is unlikely to be enough to live the life you may imagine living in retirement. Salary sacrifice is one of the most tax-effective ways to boost your super. You can have your employer pay up to $30,000 into super (or $35,000 if you’re 50 or over during the financial year) from your pre-tax salary at the concessional 15% rate of tax. Even if you are self-employed, you can make personal contributions into super up to this cap for which you claim a tax deduction. Another way to boost your super is via the co-contribution scheme whereby the Federal Government is giving away a tax-free super contributions to anyone who earns less than $50,454 a year (for the 2015/2016 year) and makes a non-concessional (after-tax) contribution to their super fund. Chase this up if it applies to you – it’s particularly applicable to young professionals on a lower income or people working part-time after having a child.
Invest and diversify
It’s important not to put all your eggs in one basket to protect yourself against significant losses if one investment fails to perform. It’s important to have a diverse portfolio of investments – whether they are held inside or outside of super. This will mean you are less likely to be adversely affected if one type of investment has a downturn. Down the track, good investments can add up to a comfortable retirement.
Insure your ability to earn
What underpins all investments is the ability to earn an income that pays for investment strategies and lifestyle. Being adequately insured is extremely important for women and gives both financial security and peace of mind. The key personal insurances to consider are income protection, life, total and permanent disability (TPD) and trauma insurance.
Seek financial advice
To find out if you’re on track for retirement there are also plenty of online calculators that make it simple – AMP has a good one here. Beyond this, seeking professional advice can make a huge difference and although the cost can seem high, it is something that ultimately can pay for itself as you’re more likely to end up in a stronger financial position long term. A financial adviser can offer expert knowledge, advice and guidance specific to your personal circumstances, helping you define your goals and work out a plan to achieve them.
Remember, you just don’t know what life is going to throw at you so whilst it’s great to be optimistic and hope for the best, it’s equally important to have a plan B just in case. Then at least if you find that you simply can’t work as long as you might have hoped, you’ll have a softer financial landing as you transition into the retirement years.
*Jenny Cattach is an Authorised Representative of AMP Financial Planning Pty Ltd, ABN 89 051 208 327, AFS Licence No. 232706. Any advice given is general only and has not taken into account your objectives, financial situation or needs. Because of this, before acting on any advice, you should consult a financial planner to consider how appropriate the advice is to your objectives, financial situation and needs.