My parents, like many of their peers, bought a caravan shortly after retiring. Each winter they escape a cold Melbourne, and head north, to explore the vastness of our nation and enjoy the agreeable climate on offer.
They’re onto their second caravan now, and whilst their preference has evolved to staying in the one spot for an extended period rather than travel around, the winter escape remains a permanent fixture in their yearly calendar.
This type of retirement, frequently referred to as the Grey Nomad lifestyle, is something of the default for Australians. Our superannuation and age pension system point us towards an income producing life that ends around 65 years of age, give or take a few years, followed by hopefully 20+ years of leisure.
And whilst this model brings happiness to many people, here at Financial Autonomy, our mission is to share with you potential alternatives. Surely there’s a way to live a full and interesting life now, not put things like travel and exploration off until our best years are behind us.
I can’t think of a single component of our complex lives where there is but one path. Certainly there might be one path that is the most popular, the most trodden. And it will be well lit to make those approaching it feel like they’d be crazy to do anything else. But there are always alternatives.
The Australian system of compulsory superannuation is an excellent one, but it does point us down a particular life trajectory. Participate in the paid workforce from around 20 years of age, until somewhere in your 60’s, when your superannuation becomes accessible, and potentially you qualify for an Aged Pension.
There’s nothing at all wrong with this life trajectory, but as we will explore, this is a life plan that came into existence a hundred odd years ago, and hasn’t changed a lot. Certainly compulsory super has only been around about 30 years, but to a large extent this has just substituted for what was once a more generous government pension, especially for those who received Veteran Affairs pensions in recognition of service to their country in World Wars 1 and 2.
It’s worth asking the question, is this traditional Grey Nomad retirement the life you are after? And I don’t just means the phase from 65 onwards. I mean the period from now until your time is up on our little green and blue ball.
So what has changed since Aged Pensions were introduced in NSW and Victoria in 1900 and a few years later in other states? Where to start.
Longer lives is perhaps the most significant change. Males born in 1900 had a life expectancy of 51.1 years, women 54.8. Now there was higher infant mortality back then, which certainly pulled the averages down. In 1900, if you made it to age 65, on average you had another 11 years to live if you were a male, almost 13 for females.
Today a 65 year old is expected live almost another 20 years. 22 years for women. If the Age Pension age had kept pace with the improvements in our life span, we’d become eligible at age 73.
And medical research and advancement isn’t stopping. The original age 65 for “official” retirement seems fairly arbitrary, but even if you assume this was right when it was established, and you appropriately adjusted it to age 73 for those at age 65 today, if you’re in your 30, 40’s or even 50’s reading to this, you will of course recognise that by the time you reach these vintages, your life expectancy will have stretched out even further.
Another important change, which links arms with increased longevity, is that for many of us in the work force, our daily activities are not physically taxing. Whereas once people had to retire because their bodies were worn out from years of physical labour, today, for many, our mental wellness is the only limiting factor.
Other trends have emerged. Bigger mortgages due to higher house prices, a function of recent low interest rates, has certainly changed the financial position of many Australians. Kids staying at home longer and thereby delaying their parents peak saving years. Larger student debts resulting in life events like buying a home or starting a family being pushed back.
All these changes mean that a life model, with its foundations dating back over 100 years, of retirement in our mid 60’s needs to be questioned and re-examined.
So what might an alternative look like?
For starters I’d suggest there is no one answer. Our life plans will look more varied in the future than they have in the past. There will certainly be people for whom retiring cold turkey at age 65 still works. But for many, a longer period generating income is highly likely.
Now what that income generation looks like is where the variety comes in. The gig economy presents opportunities for more self-employment and control for those with in demand skills. Technology enables work from home options, or for that matter work from a caravan by the beach. The traditional 40 hour, Monday to Friday working week might not be the right answer for many – whether parents of young kids, someone in their 70’s looking to slow down, or a writer looking for the time and head space to write the next Miles Franklin award winner.
The typical 4 weeks annual leave model is probably not right either.
With this explosion in potential paths, more planning and budgeting is needed. Superannuation will continue to be very important, but it is not the entire picture. Building income generating assets that can be utilised at various points in your life will be essential.
With an extended income generating life comes the need to update your skills. As automation continues to gain momentum, the tasks someone was prepared to pay you money for 10 or 20 years ago, will likely not be valued in the future.
You also want to think about what will make you happy. If you decide to work to a life path of, for instance, traveling for 6 months every 5 years, with the expectation of generating income through your exertion until age 75, then what you don’t want is for the income generating activity to be something that you hate doing, or with people that you can’t stand. You need choice and control.
Rethinking the traditional retirement by pushing back full, put your feet up, retirement has a handy benefit. Compounding is your friend. If your super is left undisturbed until your 70’s, it will earn a lot more interest on interest, meaning the amount of contributions you need to make is reduced. Say you took a year off to go back to school and upgrade your skills. That’s a year with no new money going into your super. But if you leave your super alone until later in life, the compounding effect of returns will compensate for this.
Financial Autonomy is about gaining choice. Please do reflect on whether the traditional Grey Nomad style retirement that we’re all sold, is the right plan for you. There are alternatives. You just need to take action to make them a possibility.