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Will you outlive your retirement savings?

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One of the more startling predictions to emerge from the recently released Intergenerational Report is that by 2055 there could be around 40,000 people aged 100 and over.

Who born in 1950 would have imagined they would work for 50 years and then live another 35 years in retirement?

More importantly, did they ever consider during their working life that they would outlive their retirement savings? Actuaries call that "longevity risk" and have been highlighting the issue for many years.

how to stretch your retirement savings

And do Gen Ys imagine that they may actually live to know their great-great-grandchildren as life expectancy climbs into the mid-90s by 2055? These are some of the intriguing questions arising out of the report.

While the government will ponder whether its economic policy proposals will eventually produce budget surpluses, individuals will consider what these major demographic changes mean for their standard of retirement, their health in later years and, importantly, the financial burden that will fall onto their children and grandchildren to support them.

Consider the report's analysis that the number of workers (people aged 15 to 64) supporting those aged 65-plus has declined from 7.3 in 1975 to 4.5 in 2015 and is expected to drop to 2.7 in 2055.

That's less than three workers supporting one retiree - something has to give. The elephant in the report is the issue of who will pay to look after our ageing population?

Can the younger generations afford it? Is there intergenerational equity in our retirement income system?

One obvious solution is that governments will either have to lower benefits for retirees or increase taxes on younger generations to sustain support for the older generations.

But there are some alternatives.

The Actuaries Institute believes government must encourage the community to focus on funding retirement incomes not on lump-sum payouts at retirement.

We support the Murray inquiry recommendation for super fund trustees to establish default retirement income products and to remove regulatory barriers that stifle innovation in the annuities market.

We encourage policymakers to establish an agreed set of objectives for the superannuation system so that the impacts of any proposed changes take into account the effects on age pension, aged care and health systems.

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