We have probably all laughed at that and thought not in my family, I don’t need to plan for retirement, I will get what my parents or grandparents don’t spend.  The 2004 Survey of Consumer Finances noted that 21% of people born after 1964 thought they would inherit some money someday. After all, most of them still have living parents or grandparents.  I am not sure what the numbers are here in Australia, but I would expect them to be comparable.

So what’s the reality?

Well retirees have a lot of demands on their savings. Living costs, for one, are rising fast. At the same time, many people are not waiting until they die to help their children and grandchildren financially. Finaly the current market turmoil is seeing many people concerned about how long their retirement savings will actually last.

So for these reasons, I come up with 5 reasons why people born after 1964 (and this includes me), need to take accountability for their financial health and no rely on Mum and Dad bailing you out again

1. People who make it to 65 will live a lot longer. Modern medical advancements will simply keep us alive a lot longer. At age 65, the average male has a life expectancy of 18 years and an average female has a life expectancy of 21 years That’s a combined 39 years of living expenses for couples, and it isn’t easy or fun to scale back your standard of living.
2. Social Security will probably change. There is not too many people who think that the government will be paying out more in the future that it currently does now. With the talk about keeping people in the work force for even longer, there is even the chance that you may have to wait longer to qualify for a benefit.
3. Marriage Breakdowns. It is not unusual for a couple to divorce in retirement. After years of being together, they sometimes find in retirement that they have grown apart and simply want to go their own ways. As a result the family fortune is split sooner and between the living parents. Splitting up can be expensive in itself, and maintaining two households for decades afterward will often cost more than sharing a dwelling.
4. The desire to unlock a home’s equity to meet lifestyle and other costs. The good old reverse mortgage. The reality is that homeowners can tap into the equity in their home without the need to repay it until the house is sold at their death.
5. There is also the view that the transfer of wealth will increasingly happen while the older generations are still alive. People in the latter halves of their lives now find themselves school fees and university fees for grandchildren. Indeed we have seen people who have been helping their children and grandchildren out with home deposits and even simply bailing them out of mounting debts and a host of other financial calamities.

So that’s some reasons why waiting for the folks to pass it on may not be a smart idea.  It may be that now is the time for you to work out an alternative plan just in case this one does not work for you after all.

Please Note:

This publication has been prepared to provide you with general information only. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision, you need to consider (with or without the assistance of an adviser) whether this information is appropriate to your needs, objectives and circumstances. This information is provided for persons in Australia only and is not provided for the use of any person who is in any other country.

Most of us are not interested in Centrelink benefits until we’re staring down the barrel of financial ruin brought on by an inability to meet our commitments, most often which comes about because of unexpected illness or injury.    And don’t think you’re immune.   While there are statistics, statistics and then there are statistics, research consistently shows that the blokes more so than the girls are likely to suffer from an illness or injury.  Here are some statistics to get you thinking:

• A 30 year old male has a one in three chance of suffering an illness or injury before 70.2
• Men have a higher work-related injury or illness rate (74 per 1,000 men) than women (51 per 1,000 women).3
• The industries with the highest work-related injury or illness rates are agriculture, forestry and fishing, and construction and mining3 – industries dominated by men.  

These figures are also reflected in insurance statistics.  A quick look at ING4 and Aviva5 statistics for example shows the most common occupation to become injured are tradespeople and building workers with accidents, not illness, as the most common cause for income protection claims.   In 2006, 89 percent of ING’s income protection claims were from males, with Aviva reporting a similar figure of 80 percent of income protection claims coming from the guys.

While the statistics are food for thought, adequate insurance protection is essential regardless of the industry you work in.   You might think you’re covered by Workers Compensation if you’re injured on the job but ABS research shows that less than half of those who experienced a work-related injury or illness received workers compensation6. 

Income protection can provide up to 75 percent of your income if you become injured.  And make sure you protect your insured income, not just your taxable income.  This is important for those self employed people who may split their income between themselves and a family trust or for those who need to consider vehicle lease arrangements etc.

When taking out your income protection insurance also look at waiting periods, that is, the period of time at which you stop earning an income to when the benefit kicks in.  A longer waiting period reduces premiums but you need to be able to cover yourself financially during this period.  Also, don’t forget to regularly review your insurance situation.  A good time for review is anytime there is a life changing event – a new business venture, a new mortgage, a pay rise, a new family member.

If your insurance needs reviewing, give your financial planner a call, or if you don’t have one call us on 1300 766 323 and we will create an insurance plan to suit your circumstances.

1. http://www.centrelink.gov.au/internet/internet.nsf/payments/pay_how_sck.htm
2. Based Asteron Claims Data on insured, non smoking lives
3. Young men at most risk of work-related injury or illness http://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/6324.0Media%20Release2005-06?opendocument&tabname=Summary&prodno=6324.0&issue=2005-06&num=&view=\
4. ING Retail Claim Payments 1996 http://www.lifeinsuranceadvocates.com.au/statistics/ING_statistics.pdf
5. Claims for Income Protection from 1990 – 2006, Aviva. http://www.lifeinsuranceadvocates.com.au/statistics/Aviva_Critical_Illness.pdf
6. Work -Related Injuries, Australia September 2000, ABS cat 6324.0 October 2001

Please Note:

This publication has been prepared to provide you with general information only. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision, you need to consider (with or without the assistance of an adviser) whether this information is appropriate to your needs, objectives and circumstances. This information is provided for persons in Australia only and is not provided for the use of any person who is in any other country.