As of February 2023, the retirement age in Australia is in the process of increasing from 65 to 67. Right now, Australians become eligible for retirement at 66.5 years old.
What does this mean for Australians approaching retirement or planning for it? Read on to learn more.
The Future of Australia’s Retirement Age
This is what we’ve been working with in recent years:
- On July 1st, 2017, retirement age increased to 65.5 years.
- On July 1st 2019, retirement age increased to 66 years.
- On July 1st 2021, retirement age increased to 66.5 years.
- On July 1st 2023, retirement age will increase to 67 years.
It is clear that the retirement age is going to increase this year, but what about beyond this? As of now, we don’t know. There had been talks of raising the retirement age to 70, but this has since been scrapped. With the current Labor government rather than the Liberal coalitions of Abbott, Turnbull, and Morrison, it looks unlikely that this plan to move to a retirement age of 70 will return anytime soon.
Despite this, retirement age is likely to increase eventually. Australians are living longer and are also finding themselves able to work for longer than they used to. What’s more, an ageing population in Australia means society may rely on older individuals contributing to the workforce where possible. When we reach the 67 retirement age milestone for Australia in 2023, this is not likely to be the end of the story.
What Is the Impact on Retirement Savings?
Let’s examine what this means for your retirement savings in more detail.
Longevity Risk
In terms of longevity risk, the rising retirement age is actually a beneficial thing. As life expectancy increases in Australia, retirement savings are having to work harder to maintain good quality of life. Quite simply, your money is likely to have to last longer than it would for previous generations.
This is actually what we mean by longevity risk – the danger that we may outlive our retirement savings and end up having to significantly reduce our quality of life. If we experience illness or other issues later in life and we find that our retirement savings are running out, this is a bad situation indeed.
So, if we have to work for a bit longer – and also gain the opportunity to earn more money in the process, adding to our retirement coffers – this may be beneficial.
Sequencing Risk
There are other risks too, and perhaps the most significant is sequencing risk. This form of risk relates to a retirement savings and investment instrument like an SMSF.
The viability of your SMSF essentially relies on the performance of the investments tied up in this fund. You may have good investment years, and you may have bad ones. If these bad years happen in your 30s, this might not be too much of a problem – you’ll still have around 30 years to recoup losses and steer your investments in the right direction. If these bad years happen when you’re only a year or two from retirement, it may be difficult to build your savings and investments back up.
While increasing retirement age will have little direct impact on this, there will be an indirect knock-on effect. If retirement age goes up, more people are going to focus on alternative retirement plans to allow them to retire early. This may leave people more exposed to sequencing risk as a result.
Alternative Retirement Plans
We’ve touched on this above, but it needs further exploration because this is where the biggest changes are going to be seen. For Australians, retirement age simply means the age at which you are eligible for your state pension and other pension funds you may have contributed to. There is no mandate to say you have to work to this age.
This means that you need alternative retirement plans to help you keep your plan on track, retire early – or at least earlier than 67+ – and enjoy as much of that well-earned time off as you can.
SMSFs are a popular option for Australians looking for a tax-efficient option for their retirement. However, these can be difficult to manage and also time-consuming to run on an ongoing basis. This is why it is useful to speak to an expert team who can help you make the right choice for your future.
Speak to Our Team Today
Here at Sydney Brokers, we are the experts you need. Reach out to our team today to discover more about how you can get more from your retirement savings, even as the retirement age increases in Australia.
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