Gen Y and X must save $4 MILLION to survive retirement

Via DailyMail Australia

  • Gen X and Y must save up to $4 million in the next 26 years to afford retirement
  • But up to 94 per cent of them won't have enough unless they start saving now
  • Ageing population would make pensions unaffordable in the near future
  • Relying on superannuation would leave people short of necessary savings

Generation X and Y must save as much as $4 million in the next 26 years to afford retirement - and up to 94 per cent of them won't make it.

Australia's ageing population meant pensions would all disappear and rising cost of living would make retirement more expensive, experts warned.

People needed to start saving decades in advance and not assume their superannuation would be enough to give them a comfortable post-work lifestyle.

Research by Griffith University found those planning to retire in 16 years would need $1.6 million at the current 2.5 per cent rate of inflation.

 

According to the report's modelling, 31 per cent were unlikely to reach that target from their super, primary residence, and other assets.

If inflation rose to the long-run average of 5.07 per cent about half the population would struggle to reach the required $2.4 million.

A worst case scenario in a slow economy meant between 68.75 and 87.5 per cent would fail to have enough cash to finance retirement.

Members of Gen Y hoping to retire a decade later in 26 years would need between $2.09 million and $3.98 million, depending on the inflation rate.

Researchers said 43.7 to 75 per cent wouldn't reach these targets, and in a worst case it would be between 81.3 and 93.8 per cent.

'This highlights the accumulation and longevity risk faced by significant proportions of the Gen X/Y group in a world where the aged pension is likely to be diminished,' they said.

The pension already only covered a third of expenses for most retirees and was expected to get smaller and less sufficient in the future. 

Report author Mark Brimble said people were living longer, meaning retirement was increasingly more expensive.

'Instead of people living five or 10 years after retirement it's more like 30,' he told Daily Mail Australia.

He said with an ageing population where there were forecast to be only 2.4 workers for every retiree, social security would have to be scaled back.

'The idea that you work all your life, pay taxes and the government will give you a pension is gone, the government's not going to be able to afford it,' he said.

Vanessa Stoykov, founder of financial education company No More Practice Education, which commissioned the study, said people needed to plan earlier.

She said housing was dramatically more expensive than in past generations, and along with rising cost of living it made saving harder. 

'Everything costs more and everyone's in more debt and want to send their kids to private school and take overseas holidays,' she said.

'People think it's boring and too far away to worry about. They are under the illusion that super will be enough, but Australia will be a very different place in 26 years.'

Ms Stoykov said even young people in their 20s needed to begin proactively planning for their retirement with a combination of saving and investments.

'Otherwise they will wake up one day and realise they don't have enough to retire and need to sell the house and move out of the city for a subsistence lifestyle, which their generation isn't used to doing,' she said.

She recommended identifying and eliminating bad spending habits, making long term instead of short term saving goals, and not buy things they don't need. 

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