Australia has the 3rd highest life expectancy in the world. Creating enough personal wealth to survive these longest of retirements will be our greatest financial challenge.
I know you are wondering who Mary is, but we will get to Mary in a minute.
In 1908 when the age pension was first launched in Australia, the life expectancy of a newborn boy was 55 but the age pension kicked in at 65. The original design and intent of the age pension was to support a very small number of people who happened to live well beyond normal life expectancy. Fast forward to 1971 and life expectancy of that same newborn boy had increased to about 70. Australia today has the 3rd highest life expectancy in the world, just behind Japan and Switzerland with an average national life expectancy of 82 (80 men, 84 women). As you get older, your life expectancy increases, so a 65-year-old man would have a life expectancy of 85.
It wasn’t always like this; life expectancy has shifted dramatically in a relatively short period of time.
You are probably thinking, what does this have to do with an investment property? Patience my friend, it’s a fair question that will be soon answered.
Life expectancy is an average of a very large sample of people. Being an average, only 4% of people pass away at their actuarial life expectancy. So, if we found 1,000 Australian men aged 65 today their life expectancy would be 85. That means only 40 would pass away at 85 and the rest would pass away evenly before and after 85.
Let’s pick one of the men in this sample and let’s call him John. John is a healthy 65-year-old Australian who generally looks after himself. If he was planning his retirement it is entirely reasonable that he would plan for an additional 10 years beyond average life expectancy, considering his health, to say 95. That is a 30-year journey in retirement that no one in Australia has historically had to plan for.
But John is married to Mary. Mary is not only a healthy Australian woman who eats and sleeps well, exercises, has low blood pressure and low cholesterol, but she also has genetic predisposition on top of her existing health and lifestyle. Her parents and grandparents lived well beyond their life expectancy. She is not superwoman, but she is in good shape with good genes. This makes Mary’s current life expectancy 105! This doesn’t mean that all women will live to 105, but it does mean there is a large part of the Australian population, mainly women, that have both health and genes on their side that will easily live beyond 100. Funding a retirement of this length is the greatest challenge of our time.
Today’s average 65-year-old couple has about $350,000 in super. Clearly this is nowhere near enough for what lies ahead. This leaves most Australians with a large retirement Gap, which is the difference between what they need to retire comfortably and what they have or are on track for. For most, The Gap is too big to fill up with savings (super) alone.
A growth strategy is required: a strategy that involves borrowing and buying something that will increase in value and create capital growth. Property is the only practical growth strategy for most Australians.
Investing in researched, well-located properties and holding them long term is the primary wealth solution for most Australians to bridge The Gap.
You can also download our eBook on the subject The Gap