As Smart Investing recently discussed, Australia once again ranks third out of 25 countries in the latest Melbourne Mercer Global Pension Index in terms of the overall score for our retirement-income system’s adequacy, sustainability and integrity.
The report – published by the Australian Centre for Financial Studies in conjunction with Mercer – makes the critical point that many of the world’s diverse retirement-income systems face common challenges from ageing populations and increasing longevity.
These challenges include encouraging older people to keep working, discouraging the spending of retirement savings before retirement, encouraging higher voluntary retirement savings and increasing retirement fund membership among the self-employed.
Although the suggestions of the Global Pension Index are directed mainly at government and the pension/retirement sectors, individuals may pick up useful personal pointers from most of its suggestions to, perhaps, discuss with a financial planner. In other words, consider taking a personal perspective on this global retirement-incomes challenge.
These pointers include:
- Think about whether to work until an older age than initially intended. The longer a person remains in the workforce, the greater the opportunity to save for what will be a shorter and therefore less costly retirement than otherwise. (An individual’s ability to work longer will much depend, of course, on personal circumstances including health and employment opportunities.)
- Consider contributing to super if self-employed. Unlike employees, the self-employed in Australia are not required to save in super. And research by the Association of Superannuation Funds of Australia (ASFA) among others has long shown that the self-employed overall have extremely low super savings. There are obviously exceptions with many self-employed, for instance, being among the most-enthusiastic supporters self-managed super.
- Try to save more in super within the annual contribution caps. The more that super members contribute to super, the greater their potential rewards from its concessional tax treatment of contributions and earnings as well as from compounding as their balances grow. And the main reward, of course, is that higher super savings potentially mean a higher standard of living in retirement.
- Think carefully before accumulating pre-retirement debt with the purpose of repaying it with super savings – it could reduce your standard of living in retirement. (The Global Pension Index raises concerns about the "leakage of retirement savings" before retirement.)
- Consider taking a superannuation pension rather than a lump sum upon retirement. This will help ensure that your savings remain in the concessionally-tax or tax-free super system for as long as possible and, most importantly, make your retirement lifestyle as comfortable as possible for as long as possible.
While governments and societies as a whole grapple with how to make retirement-incomes systems more adequate and sustainable as global populations rapidly age, individuals can act to ensure that they are personally as prepared as possible for retirement.
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Robin Bowerman is Head of Market Strategy and Communication, Vanguard Australia. As a renowned market commentator and editor Robin has spent more than two decades writing about all things investment. |
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