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The “Silent Risk”: Possible Pitfalls in Retirement for Australians

What is “the silent risk?”

Australia is one of the best countries when it comes to pension, health care, and public services. Satisfying lifestyles may have contributed to why there’s an increasing lifespan for its residents.

Currently, men are living twice as long compared in the 1800s, with an average age of 80 years old. Women are enjoying an even longer average life expectancy at 84 years old.

Indeed, the country is called a “lucky country” as quality of life is on the rise, and living conditions improving due to vital sectors like health care.

But along with this good news is a potential risk. The consequence of living longer is sustaining daily expenses for longer.

Even with comprehensive government subsidies, it’s evident that Australians may have to work longer to be able to support themselves in retirement.

How to take on the silent risk

In an interview with Deborah Rognlien of The IF Group, we discuss the issue of retirement and longer lifespan.

Rognlien explains that the situation and needs of retirees is now wholly different compared to decades ago.

For instance, state government pension schemes could no longer support all members. Coverage for all beneficiaries has resulted to a negative cash flow for the state government. That means it’s become overwhelming for the state to cover lifetime pension. According to Rognlien, this is one major change that retirees experience today.

But she also recognises key government initiatives that protects the ageing population. She says, “Our government did the right thing; it was about ’89 when they implemented the mandatory 3% superannuation which the United States only implemented maybe about 8 years ago, and they started at 1%…Australia really is a leader in this venture.”

The government has also introduced superannuation options, where an individual could opt to access the super as a lump sum or partial lump sum in case of grave health problems or family concerns that entail funding.

However, there are still gaps to be closed.

For females especially, those who decide to raise a family tend to be at a huge disadvantage for two reasons. One, their super fund would not be parallel to the amount males get because of shorter work duration. Also, their super would be spent on home needs, instead of being preserved for their retirement years.

Rognlien mentions that the government has previously looked into this issue.

In the early ‘90s, she shares, “Governments have made efforts to give women the opportunity to buy back previous years of experience, particularly in the teaching profession. They had to buy back the units and they could do it on a progressive basis.”

When asked how Australians can handle this silent risk, she advises that individuals need to start earlier and be more proactive about finances.

What could seem irrelevant for younger members of the workforce should be prioritised as early as possible.

Rognlien says, “People will have to save harder and work a little bit longer.”

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