Retirement is potentially one of the most exciting times of your life. At long last you can put your feet up after decades of hard work and enjoy the fruits of your many years of effort. Now is the time to be travelling the world, working in the garden or spending hours with the grandkids – or so you thought.
Sadly, the dream of retirement does not necessarily pan out as the brochures suggested. Between the 1970’s and today the number of working tax payers required to carry the burden of social welfare payments such as pensions has increased, with estimates by Treasurer Scott Morrison that eight out of ten taxpayers must go to work each day just to fund our social welfare system. Pensions represent almost 1/3 of this funding. The situation is becoming unsustainable.
When the pension was first introduced the average life expectancy was very similar to the age of pension entitlement – it was not designed to maintain people long term. With the extension of life expectancy – now some 20 years longer than when super first came in – many retirees are now facing the fact that they can no longer survive as dependents of the government for the rest of their life.
Having a diversified means of earning income will provide you with more certainty in the future. Here’s some of the options you can consider for sustaining your income in retirement.
Pension – It still exists for now and if you have already qualified it’s likely you can expect to continue receiving it in the future. For those who are yet of retirement age, however the chances of the pension still being around in its current form by the time you retire is becoming increasingly slim.
Retirement savings – Increasingly retirees are going to have to depend on themselves to get through their golden years and if you haven’t already begun to put a percentage of your earnings aside it’s now time to start.
House (reverse mortgage) – Existing equity may just be the hidden gem to tap into instantly available money with limited consequences. A reverse mortgage enables you to release equity from your house through borrowings with the balance and interest accumulating until you eventually sell your house. This can effectively ‘pass the buck’ on the cost of your borrowings to be dealt with from your inheritance.
Property – A mainstay of many investment portfolios, property can offer both the chance to develop further capital gains while also offering an opportunity to gain income.
Shares – like property, can provide both capital gain and an income source from dividends. The level of risk you undertake will depend on your stage of life and the investments you are willing to make. Chasing high income returns can seem attractive but you should also consider the risk to your capital and how easy it will be to replace it.
Part time work – Retirement is becoming a more fluid concept. Many retirees are still undertaking at least some part time work. In the last decade, the number of people aged 45 and over who believe they will still be working at 70 has increased from 8% to 23% of the population. Continuing to work past 65 will become the new norm.
Internet – The growth of the internet has provided many in their fifties and sixties with a means to explore ways to turn their talents into an online income. New software and online selling portals have created opportunities that never existed ten years ago and provide a means to earn an income without going to work.
Downsizing – If a reverse mortgage makes you feel uncomfortable then an alternative way to release equity is from downsizing your home. This can free up cash plus provide extra money from selling off unneeded assets. You will also gain from reduced expenditure on maintenance and utilities.
One can be the loneliest number and depending on just one means of income in your retirement can leave you vulnerable. It’s worth taking the time to explore these and other options that can help make your retirement dreams a reality.
If you’re planning your retirement and thinking about what income sources you will have, you may find it beneficial to talk to a financial advisor who can provide you with the knowledge and advice to make the right decisions.
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The information in this article is general in nature and does not take into consideration your personal situation or circumstances. You should consider whether the information contained in this article is suitable to your needs and where appropriate, seek professional advice from a Financial Advisor or other finance professional.