Don’t end up like these retirees

Don't end up like these retirees

A number of retirees could be forced to rely on the Age Pension in their twilight years

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published July 28, 2016 2:23 pm AEST

As many as 10% of all retirees could be forced to fall back onto the aged pension, according to new research from The Actuaries Institute.

Two new studies released today, one by the CSIRO and one by a private research firm show that Australia's retirement system is not sustainable for people living longer than the average life expectancy. The studies also show that some retirees are drawing down their super at unsustainable rates and will run out of super.

"Between the ages of 75 and 85, about one-fifth of balances are being drawn down at more than 10% of their balances, which is not sustainable for those who live longer than average," the Institute says.

Those retirees will be forced to rely even more on government funding and the age pension.

The good news, according to Anthony Asher from the Actuaries Institute retirement income working group, is that at least half of all pensioners take a very financially conservative approach in retirement – only drawing down the minimum required balance.

If you don't want to end up having to rely on the pension, then you also need to make sure you have enough funds in superannuation to start with.

That means building a substantial next egg while in the accumulation phase.

One way to do that is by investing in the stock market – either in exchange traded funds (ETFs), listed investment companies or directly into company shares. Vanguard research has shown that since 1970, the Australian share market has returned 9.7% on average per year.

We highlighted four companies earlier today that investors could sock away for a decade, including Telstra Corporation Ltd (ASX: TLS), Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES), but they are by no means the only stocks.

Foolish takeaway

If you haven't started building your retirement funds, now might the perfect time to start. And if you are saving into your super – some investors might want to consider increasing their savings. ASIC's MoneySmart website has some useful calculators investors can use to see how much they need to retire comfortably.

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