A Workable Solution for Baby Boomers Near Retirement

Worried about having enough in your nest egg for retirement? Here’s a simple approach: work just a few years longer. By accumulating more savings and shortening your withdrawal period, you don’t need as high a lump sum  to generate the necessary income at retirement.

We like to think that Australian workers typically accumulate a significant amount of savings during their working years to support their standard of living in retirement. A survey conducted by the Australian Bureau of Statistics in 2007 found that the average superannuation balance reported by Australian workers was just $23,700.

Even among workers aged 55 to 64, the average balance was just over $71,000. Only 35% of Australians have ANY super left by the time they get to 75 and as many are living well into their 80’s; almost 70% of retirees now claim some form of government support.

Understandably, the extent of workers’ savings has become an increasing concern to policymakers for the past decades as the members of the generation born from 1946 to 1964 – known as the  – approach the end of their careers and prepare to leave the workforce. Boomers who are tired of their jobs are naturally eager to get out of the rat race and do something more enjoyable and fulfilling.

Surveys show that most baby boomers plan to work in some capacity during their retirement years. The question is, should you keep working a little longer in your primary career (that is, delay retirement), or should you retire early and go back to work doing something different?

There is pretty convincing evidence why working in one’s primary career just a few years longer can make a huge difference in the amount of money a retiree has to available in retirement. It is also interesting to note that not only are people generally living longer, but their retirement savings have to last longer as well. Proof of this is that (average) retirement savings now have to fund 19 years of pension and retirement income, whereas in 1970 retirement savings only had to fund the equivalent of 3 years retirement income.

It was not uncommon for baby boomers to start working at in their mid 20’s, after university or a trade is completed. The goal was early retirement at the age of 55, leaving most people 30 years in retirement. Could we ever afford this system? Many expected to spend an equal amount of time in retirement as they do working. Put simply, you only have 35 years to save enough in order to spend the next 35 years doing what you dreamed of!

How can we fix this dilemma? Work until you’re older! The longer you work (all else being equal), the more prepared for retirement you are likely to be. Working just a few years longer and saving somewhat more of their income can greatly improve older workers’ financial status even if they have not saved much until they near retirement.

Australians in their 60’s can typically expect to live another 20 years or so. By extending their working lives, they shorten their period of retirement that they need to finance while giving themselves more time to save. Moreover, by continuing to work they are eligible for things form the government like the mature age worker tax offset (people over 55), and an array of superannuation options begin to become available.

Another option many could look at is implementing a transition to retirement pension strategy. Today’s superannuation rules enable workers approaching retirement to ‘transition’ towards retirement by reducing their work hours and to supplement their super. When combined with salary sacrifice contributions, a transitional approach can also help to boost your retirement savings or increase your disposable income.

With a larger amount of income likely to be untaxed a worker who delays retirement will not need as much total income to have the same after-tax income as one who retires early. When you sit down and do the numbers, you can easily get a realistic idea of your likely retirement income. If you need some straight talk about how much money you’ll have during your golden years, you can simply arrange your Free Financial Health Check with Foundation Financial Services. Click here to arrange your appointment.

Work now or later? Ok then, if working a bit longer is the solution to funding a comfortable retirement what about taking up a new line of work after leaving one’s primary job? The problem here is that post-retirement jobs generally don’t pay very much. Fun jobs such as fly fishing instructor or tour director, pay very little, while skilled jobs in a different field, such as teaching or nursing, may require costly training and will likely start at the bottom of an already low pay scale. Boomers have the opportunity to escape that fate by working just a little longer at the front end of their retirement years.

Working longer will not be the solution for everyone. Some people are forced into retirement by their employers or for health reasons. Those who are set with generous pensions and substantial personal assets may have the luxury of not working at all.

But rest assure, baby boomers who are at the peak of their careers, especially those who have not saved as much as they’ll need to finance a comfortable retirement, may be glad to know that staying in the workforce just a little longer can make a world of difference in the amount of money they will need to save. Then they can explore some of those interesting encore careers that will give meaning to the rest of their lives.

Copyright © 2011 Robert Bauman

Take control of your money now. Visit www.RobertBauman.com.au and get more resources to create your financial independence.


Disclaimer: This information (including taxation) is general in nature and is for Australian residents only. It does not consider your individual circumstances or needs. Do not act until you seek professional advice and consider a Product Disclosure Statement. To find out more about services provided by Foundation Financial Services Pty Ltd please visit my website.