Australia is experiencing a slowdown in population growth as fertility rates continue to decline, partly due to the COVID-19 pandemic.
By 2061, the number of Australians aged 65 and above is set to double to 8.9 million, representing almost a quarter of the total population. The growth rate is even higher among the 85 and older group which is predicted to triple to 1.9 million or 5% of the population, up from 2% in 2020.
With a small economy tasked with managing a rapidly ageing population, here are five takeaways for Australians preparing for retirement.
- More people will retire later in life
While the ageing population is expected to lower the overall workforce participation rate, there will likely be an increase in the number of older people who stay in the workforce. This trend reflects increased life expectancies, improved health at an older age, and shifting social attitudes towards older workers.
An increase in part-time and less physically demanding jobs will make it easier for older Australians to ease gradually into retirement. This means you could consider cutting back your work hours for a few years before stopping employment completely, providing additional income in the lead-up to retirement.
- Aged care spending is set to rise
The increase in Australia’s older population will result in greater demand for aged care services over the long term. The Government currently pays 80% of total aged care spend, a 40% increase since 2013. According to the Royal Commission into Aged Care Quality and Safety, further significant increases in funding will still be required.
It’s projected that aged care spending will need to nearly double by 2061, taking it to 2.1% of Australia’s GDP.
The move towards a greater supply of home-care packages to support older Australians living independently will create added pressure on aged care budgets.
As such, it’s important to consider the type of care you might need in the future, to ensure you can cover any gap between government funding and age-care costs. That way you can take more control of how you live later in life, without depending on the government to provide.
- Dementia will become more prevalent
It’s tipped that life expectancy will continue to rise, from the 2018 average of 80.9 years for men and 85 years for women, to 86.8 years for men and 89.3 years for women by 2061.
While this is generally good news, there is a downside too. Dementia, Australia’s leading second leading cause of death, correlates to age. This means the condition is likely to become more prevalent as life expectancies rise.
The impact of this on Australia’s aged care system will be one of Australia’s most pressing health challenges, as declining cognitive capacity is a major trigger for accessing services. Your retirement plan should carefully consider all potential healthcare needs at different stages of your retirement and you should factor this into your budget.
- Welfare spending will shrink
The strong boost to health and aged care spending will be partially offset by slower growth in the Age Pension, which is projected to fall from 2.5% to 2.1% of the national GDP in the next 40 years.
Younger generations should not rely on the more generous government benefits their forebears relied on. It’s likely they’ll be expected to support a greater proportion of their retirement with their own superannuation savings.
- Economic growth will continue to slow
COVID-19 has profoundly impacted Australia’s economic outlook, which delivered the most severe shock since the Great Depression. In addition to this, we’re also experiencing lower migration levels and population growth. As a result, it’s projected that our economy will grow at the slower pace of 2.6% per year until 2061, compared with 3% over the past 40 years.
Many retirees rely on investments outside of superannuation to fund their lifestyles. While the economic recovery is already underway, we’ll continue to feel some impact from COVID-19 for years to come.
Everyone’s lifestyle and financial goals for retirement are different. So when preparing for your own retirement, your first port-of-call should be your financial adviser. We can help you understand how Australia’s shifting demographics might impact your retirement – and create tailored strategies around your individual needs and goals. Give us a call on 03 5434 7600