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We are living longer, but can we afford it?

Old couple

Many Aussies struggle with day-to-day expenses alone, putting a sustainable retirement at risk for a whole generation of Australians. 

With over 5 million Baby Boomers – those born between 1946 and 1964 – the future holds 25 plus years without an income through employment.

The risk of running out of funds is currently being compounded by lower investment returns through traditional safe havens – treasury bonds, cash and deposits in the bank – and property prices falling in the major capitals.

Further, market research consistently shows that many Australians are struggling with day-to-day expenses alone.

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Retirees are faced with a real dilemma of how can they fund the remaining years, and not risk losing their hard-earned cash.

Lessons from the GFC

Loss aversion is still a powerful motivation for many Baby Boomers, who were negatively affected when the markets crashed.

The idea of “buy the dips and sell high” or “time in the market” is not ideal for most, according to Pentalpha Investment Management.

Retirees instead should be focused on income-producing assets, as opposed to trying to beat or pick the market with big capital gains.

Diversification is key

For the corporate regulator, portfolio diversification is a key strategy to mitigating risk for a retirement income portfolio.

“Assets that carry a higher risk should deliver a higher reward but are also likely to have more volatile returns over the short term. You can offset some of this risk and volatility by including assets that have lower risk and return but lower short-term volatility,” ASIC said.

“In addition, markets for different asset classes peak at different times, which means when returns for one asset class are high, returns for a different asset class may be low. By having your funds spread across a number of different investment types, your overall returns will be less volatile as low returns or losses on one investment are offset against high returns or gains on another,” ASIC said.

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We are living longer, but can we afford it?
Old couple
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Cameron Micallef

Cameron Micallef is a journalist at Nest Egg, writing primarily about personal wealth and economic markets. 

Prior to this, Cameron worked for Australian Associated Press. He graduated from the University of Wollongong with a double degree in communications and commerce.

You can contact him on: This email address is being protected from spambots. You need JavaScript enabled to view it.

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Anonymous - This is silly. Most countries would think 3 per cent was fantastically low. Further, who measures how much economic activity is being destroyed by.......
Anonymous - What a load of rot! What is he comparing the detriment to, and how much does the GFC effects factor into his farcical calculations? ....
Anonymous - In other words, sack advisers and cut costs. It's the financial version of #me too movement.....
Anonymous - If that's after tax pay then I'm screwed.....