Plan Now – Enjoy Retirement

Plan Now – Enjoy Retirement

This article includes interesting statistics about longevity. It also enlightens us to some of the ongoing health care costs.

Like most developed countries in the world, Australia is experiencing a dramatic increase in ‘grey heads’. Those aged over 65 currently comprise 14 percent of the population, with just 4.5 people of working age to fund each of these potential retirees. By 2055 this ratio will reduce to 2.7 as the total proportion of the population over 65 will more than double what it is today.

This means the significant increase in possible age pensions will need to be paid for by fewer and fewer tax payers, forcing more individuals to fund their own retirement. It also raises a couple of key questions: How much do we need to save for retirement? And what provisions do we need to make to meet health care costs?

Measuring retirement savings and longevity

If you’ve ever pondered how much money you will need in retirement, you’ll know that there’s no easy answer. Among other things, it depends on how long you will live, how much income you wish to draw, and the returns on your investments during this time.

To assist this process, the Australian Institute for Population Ageing Research (part of the University of NSW) published a Longevity Index in 2009. This index helps you to estimate the capital required for each $1 of retirement income you need.

The index showed the following values (rounded) for men and women of various ages. It assumes that cost of living increases by the official inflation rate (CPI) and that funds are invested in government bonds.



Male Female
55 21 22
60 20 21
65 19 20
70 17 18

To apply this index to your situation, decide how much annual income you wish to live on, let’s say $50,000. If you are a 60-year-old man, just multiply that amount by the relative index value (20) and you will need $1,000,000 invested. By comparison, a female of the same age is expected to live slightly longer, and requires a slightly higher level of retirement capital—$1,050,000.

What about the cost of health care?

The cost of living longer is not only linked to the number of years in retirement. Better detection and treatment of breast cancer, for example, is reducing the number of deaths from this disease. Now, over 89% of women diagnosed with breast cancer will survive more than five years—an increase of 17% in the past couple of decades.

But this also comes at a cost. It’s not uncommon for cancer treatment to cost patients up to $50,000 per year, and that’s on top of any lost income. With a rebate from the Pharmaceutical Benefits Scheme (PBS) not always available, these health-related costs add another sobering dimension to our longevity as a nation.

There are so many issues to consider when thinking about your retirement years, but you are not alone. Speak to us about planning your future up to and throughout retirement.

Contact your financial adviser if you would like to know more about children’s trauma insurance.