As the first wave of baby boomers hits 65 and nears retirement, many concerns have arisen. Normally this would be a time for this generation to look forward to things they really want to do, but the repercussions of the global financial crisis have disrupted the secure and comfortable retirement plans for the boomers.
A combination of government policies, longer life expectancy, higher debt levels and poor returns on investment during the GFC are derailing early retirement plans and have encouraged the extension of the working age to 70 after which boomers can retire more comfortably.
Baby boomers that retire at 65 or earlier pose a two-fold problem for the Australian healthcare system. Comprising of over 25% of our population, retired boomers will ultimately require long-term care at home or in aged care facilities due to longer life expectancy. Despite the advancements in medical technology that enable people to live longer, there is little promise of a high quality of extended life, leading to increased healthcare costs.
Based on current trends, the second negative impact earlier retirement will cause is to the medical workforce, where boomers make up a significant portion of the employed. An earlier retirement age will result in fewer nurses, with the industry already struggling to attract younger talent pools due to the high stress and long hours accompanying the work. Over one-third of all general practitioners and specialists are aged 50 or over, and while the current overall ratio shows 1.2 people entering the industry for every retiree, this could change significantly as the wave of retirement grows.
By lifting the retirement age to 70, boomers, not just in the medical profession but across all industries, will stay engaged in productive work keeping them active, mentally stimulated and healthy. Through the desire to pass on their knowledge and experience to younger generations, they will provide several benefits to the workforce and the economy of the country.
If the boomers retire earlier, Australia faces a significant loss of experience which will have a profound impact on business performance. The loss of intellectual capital will not only increase learning and development costs, but may also see more costly errors by younger generations, reduced efficiency, increased noncompliance to regulations, and a lack of effective leadership.
Lastly, there is the concern of an increase in taxes to support retirees. In the 2012-2013 financial year, taxpayers spent $36 billion on pensions, and an early retirement age could mean a whopping 86% of baby boomers are financially unprepared for retirement. This would lead to higher taxes for Generation Y and X to support pension costs, which could also stress the superannuation system. A new late-retirement plan from the government’s top policy agency could see boomers having to contribute a portion of tax dollars to help pay for aged care. Lifting the retirement and pension ages by five years to 70 would save an estimated $150 billion in welfare and health spending, and $78,000 per retiree in pension payments.
With the above points in mind, there is a valid argument for the retirement age to increase to 70. Many boomers are already planning to retire later in life due to the financial constraints they are aware of facing with an early retirement. Equally, the prospect of living until they are 95 or 100 means they are out of the workforce for 30 to 35 years. You can only play so much golf! Their intention is to work longer and derive a better income from profit share and dividends than simply relying on savings, superfunds and pensions.
What are your concerns about raising the retirement age to 70? What plans have you made to prepare for transition to retirement?
I look forward to reading your comments.
Warm wishes, Donny