According to AMP Capital chief economist Shane Oliver, the risks posed by severe economic downturns are real and can have devastating impacts on retirement savings.

Speaking in an AMP Capital insight, he added that savers should know that these things occur and, as such, have safety-guards in place.

“Significant economic downturns, when they adversely affect investment markets to a large degree, like at the time of the GFC, have a big negative impact on people’s retirement savings,” Mr Oliver said.

“But we know these things happen; if you’re going to spend 20, 30 years in retirement you should allow for at least two, probably three major investment market downturns through that period.”

The trick is to allow for it, he continued, so when the events happen it doesn’t adversely impact retirement lifestyles.

At the same time, pre-retirees should understand that they’re saving for a longer time period than previous generations.

According to the Australian Bureau of Statistics, someone born in 2015 is expected to live about 33 years longer than someone born in 1890.

At the same time, World Economic Forum figures predict the gap between what Australians have in retirement and what they need will balloon to $9 trillion by 2050, from $1 trillion in 2015.

With this growth in longevity in mind, Mr Oliver said increased working lives are an important aspect of meeting retirement income and simultaneously protecting the Australian economy from shocks.

He explained that a mass Baby Boomer exodus into retirement could have significant impacts for the Australian economy.

“There’s a whole bunch of benefits of keeping older Australians in the workforce longer. For the economy, it means more workers,” Mr Oliver said.

“We’ve got an ageing population, the workforce is not growing as strongly as it used to. We’ve got more workers out there and as people stay in the workforce longer it keeps the economy going.

“Secondly, older Australians tend to be more productive than really young Australians. We saw that in the 1970s as the Baby Boomers hit the workforce, there was a slump in productivity.

“Now, all those Baby Boomers are ultra-productive and the last thing we want is for them all to leave the workforce at the same time, because that will adversely affect productivity in the economy.”

As for the individuals, Mr Oliver said the benefits of a sense of purpose, an active mind and a gentle transition into retirement should also be considered.

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