Plan ahead or spend it before you’re too old?

The first generation of Baby Boomers is meant to retire this year but with many boomers being hit by the GFC, what are their retirement plans?

In a study conducted for The Financial Review’s Smart Investor, it was revealed that 46% of boomers still slaving away at work were doing so because of the economic downturn. Instead of retiring this year, 31% expect they will be hanging up their hats in five years time and about 33% the following year.

So how did the GFC actually impact boomers?  Twenty-eight percent were forced to sell investments while 18% had to pull back on their lifestyle. But while some had to cut back, it is important to note that this is the first generation in Australia to retire with Superannuation which was made compulsory in 1992. But it might have been just a little too late, with 78% of boomers making additional contributions to their super to make up for lost time.

With many boomers lacking super from work prior to 1992, retirement will mainly be made up from 60% of super, 17% shares and investments, 11% from investment homes or properties, 40% from downsizing their home and 2% will come from inheritance. This will give the average boomer around $100,000 to retire with, and by the end of the 20 year generation of boomers, this figure is expected to rise to $259,000.

So with $100,000 in their pocket, what are all these baby boomers going to do with all that money? Instead of leaving an inheritance to their generation y children who are still living at home all-expenses-paid, 14% told Smart Investor that they intended to blow the lot while 10% said they will bequeath the most possible.

Despite intending to spend up big during retirement, their children will gain some benefit with boomers wishing to share the majority of their wealth with their children in life rather in death. Travel, home improvements, entertainment and restaurants were next on the list of where the money would be spent.

But while some will be living it up big, some boomers don’t actually have enough super and some still have mortgages to pay. Australian Bureau of Statistics (ABS) figures shows that 4.2% of 45-54 year olds still had mortgages in 1995-96. This figure jumped to 7.6%in 2005-06.

But even with a small superannuation fund, Financial Strategist, Theo Marinis said that most people will be able to enjoy their golden years on much less than they think thanks to Australia’s generous tax and pension systems.

“For a traditional Australian couple on an average annual income of $65,000 with $200,000 in superannuation, the actual take-home income from the combination of age pension and super will be very similar to what they were earning when working full-time”.

According to the Westpac – ASFA Retirement standard, a single person needs an annual income of $39,081 to live comfortably in retirement and around $425,000-$490,000 in lump-sum super to live comfortably for the expected life span (88 years if you’re female and 85 years for males). This is well above the average $100,000 sum mentioned earlier.

It seems the Australian welfare system is going to remain under pressure as retirees continue to require pension payments because their nest-eggs are not big enough to support them by themselves. And while some boomers will be able to explore the world, others may just have to be satisfied with the fact that they’re going to be able to continue to live the lifestyle to which they have been accustomed.

Perhaps the lesson is to plan ahead and invest wisely so that you can spend your older years without worry. Or perhaps it is to spend the money while you can, because you don’t want to get to 80 or 90 years old with a bank account full of money that could’ve paid for that trip you always dreamt of.

Contact us today to discuss how we can help you reach Australia’s older population more effectively. More about our Health & Ageing practice, including case studies, here.

image credit : Cuba Gallery