Retirement savings around the world

Medical advancements may be leading to longer life expectancies, but how are your retirement savings keeping up?

Australians are expected to live longer than most other people in the world. The United Nations in 2010 ranked Australia in fourth place for life expectancy around the world. Males are expected to make it to 79 years, and females to nearly 84. Mildly ahead of Australia are only Japan, Switzerland and Hong Kong.

A study from HSBC in February this year shows that our retirement savings are not keeping up. On average, it found that people around the world have a 44% shortfall in their retirement savings. Australia is ranked seventh in terms of shortfall, with retirement expected to last for 21 years but retirement savings only for 10.

Worldwide, the study found that people will generally run out of retirement savings just over half way into their retirement. The United Kingdom has one of the largest shortfalls, with retirement expected to last for 19 years but the average person’s retirement will last for just seven, and the US is ranked thirteenth.

Source: The Telegraph, UK 

In September 2012, the Financial Services Council in Australia announced a $1 trillion expected shortfall in retirement savings for Australians who live longer than life expectancy. To meet this shortfall, they are recommending the government bring forward the legislated 12% compulsory superannuation contributions, which are intended to take effect in mid-2019.

Putting it all together, Australians can expect to have a shortfall in retirement. But there are a few things you can do now to help bridge this gap.

1. Work longer, retire later

From 1 July 2017, the qualifying age for the age pension will increase from 65 years to 65 and a half years. The qualifying age will then rise by six months every two years, reaching 67 by 1 July 2023, however will remain at 65 for anyone born before July 1952.

Whether you like it or not, the government is expecting you to work longer before they will pay you a pension.

2. Eliminate your debts

Pay off your debts sooner. This includes credit cards, personal loans, car loans and even your mortgage. The less you have going out to pay these debts, the more you have as disposable income and more you can save.

3. Live frugally

Learning to live on less now will make the transition easier when it comes time to officially retire. Do you really need another pair of jeans to add to the pile of 10 already in your wardrobe? And rather than eating out at fancy restaurants twice a week, learn to cook gourmet meals and only eat out only once a week. There are many things you can do now to reduce your outgoings.

4. Develop new skills

According to HSBC, Australians can expect to spend 21 years in retirement. You may find that there are only so many rounds of golf you can do in this time so you may need to find other interests to occupy your time, and keep your body and mind active. Why not develop some new skills that could bring in extra cash or boost your enthusiasm for life? It’s never too late to study a new interest or take up a new hobby. You may even be able to generate an income from it.

5. Save more

Increase your contributions to super and savings as early as you can to get the benefits of compounding. Decide on a regular amount and have it deducted automatically from your pay or bank account before you get the temptation to spend it. You won’t miss it if you don’t see it in the first place.

I’ve decided to budget but feel so stuck

Okay, so you’ve fretted over your finances for long enough, and you can’t bear the thought of being in the same situation with your finances this time next year.

Or, heaven forbid, an even worse position – even though if you are completely honest with yourself you see that this is a very likely scenario.

So you take the bold step of adding a tentative three-hour appointment with yourself in your handy iPhone calendar on an evening when you can’t afford to join your mates at the local pub, and are suddenly filled with trepidation as you hit the save button over how this may change your life.

Will you go from shouting your friends a beer on Friday night to sitting at home alone watching Better Homes and Gardens and taking notes on how to make a better souffle? Can you ever again have your favourite gourmet wood-fired pizza followed by raspberry gelato after seeing the latest thriller starring Bruce Willis at the movies? Hell, will this mean that the only movies you’ll even see in future will be the ones on free-to-air TV on all those Saturday nights when you’ll be as free as a bird with a ball and chain tied to its left leg?

But you take a deep breath as you hit the save button on your appointment and start to count down the days to your own Armageddon.

The day finally arrives when you decide to tackle your demons. And, just as you imagine a demon would, a heavy weariness descends over you in a dark cloud. It would be so much easier to accept that last-minute invitation to see the band only in town for this one weekend and be done with it.

But you choose to stay and face the music at home, alone. With the Birds of Tokyo belting out their latest hit in the background, of course. And you pat yourself on the back for getting off to a great start as you unscrew the bottle of cleanskin Semillon from New Zealand that you bought on special yesterday in anticipation of budget cutbacks.

You take a seat as you admire the latest super-fast laptop with a terabyte of storage in front of you – your last major purchase, you told yourself – and feel that demon clench you around your gut and threaten to annihilate you if you don’t stop this ridiculous attempt to take control of your money. After all, nobody else does it, right?

You hit back by pressing that teeny button to turn on your computer. As it boots up, it teases you by sounding like it’s about to take off to Hawaii in first class to sip Margaritas on a sandy white beach.

Then it hits you like a demon with an oversized baton. You don’t know where to start. As you stare at the blank screen you don’t even know which programs to open, which bills to look at first – or even where to find some of them.

You think of hitting back again by slamming the computer shut and simultaneously giving that demon a sucker punch without realising that, in fact, the demon would be the one coming out on top. You could then grab your wallet, keys and new iPhone in record speed, toss off those shackles and fly out the door.

If this is where you find yourself, stay put. Think of it like training for a five-kilometre run. You don’t put on your tattered old sneakers and expect it to be a walk in the park in record time. You need the right gear and a good understanding of your starting position. Do you have a dodgy ankle you need to watch or an existing heart condition you need to manage?

Then, even though you put in consistent effort over time you see only marginal results with each training session. Until one day you look back and realise that you have completed the course without feeling like you need to lie down for the next hour.

Running can make you healthier, just like budgeting can make you wealthier. Here’s three things you can do now to start your budgeting off in a new wealthier direction.

1. Take stock

Stop and collect your thoughts. In fact, while you’re at it, collect all your bank and credit card statements, bills, information on other outstanding debts, and even your investments and superannuation statements.

You need to know what your financial position is now before you can really do anything positive about it. This becomes the stake in the ground from which to measure your progress. Try to avoid beating yourself up over past mistakes that got you to where to you are now.

Each of these items needs to be dissected to give you a clearer view of where you are at.

2. Select your arsenal

You wouldn’t go jogging in your Prada’s, and you can’t budget properly on the back of an envelope. Just like any job worth doing, you need the right tools.

What are some of the tools at your disposal?

• Pen, notebook and calculator: Trusty old school methods can be just as effective today.
• Spreadsheet software: You may already have Microsoft Excel or iWork Numbers as part of your computer set-up, but there are also free online spreadsheets you can use.
• A budgeting app from the iTunes store: There are now many to choose from, and you can read the reviews from existing users to see which is right for you.

Take your time and investigate your options. Then, if using a tool that is new to you, take the time to learn how to use it. After all, you wouldn’t charge into battle brandishing a gun you not know how to fire it.

3. Diarise a regular date with yourself

To keep a healthy and happy relationship going, we are advised to schedule regular date nights with our partner. To keep your finances healthy, you similarly need to book in a regular catch up.

Do this now before your calendar gets filled with other really important dates. Make a recurring calendar entry – whether weekly, fortnightly or monthly and treat it like boot camp. You may not look forward to it and may not even really enjoy it while you are there, but you are always glad you did it afterwards.

Now, my friends, the real work of budgeting can begin.

Help, I can’t get motivated to budget

You’re not alone. That quick Thai take-away dinner on your way home from a late night at work last week and the new shoes on sale that you just had to have are now staring back you on your statement and looking much less attractive than they did at the time you handed over your card.

If some variation of this is a regular occurrence for you then the chances are high that you don’t have a budget. Or that you have trouble sticking to it. The simple economics is that you derive more satisfaction from your impulsive purchase at the time than you do in seeing your bank balance grow. The truth for you and many others just like you is: have money, will spend.

The unfortunate reality is that most of us have been conditioned that way. It’s only a pair of shoes and they made your legs look so much slimmer – and of course you deserved them. After all, you haven’t even bought any new shoes in well over a month. Meanwhile, you had a busy day at the office and were hungry, and that Pad Thai hit the spot perfectly.

In a parallel universe, you could have admired the shoes in the shop window, kept that credit card firmly stowed in your wallet and continued on walking until you got home. You would then look in your full fridge after your weekend supermarket expedition and chop up your veggies to toss in with some chicken, noodles and that new brand of Pad Thai sauce with the face of some MasterChef contestant from a few years ago.

Then you could have enjoyed your dinner while standing in the kitchen in one of your existing three pairs of hot red heels before packing the leftovers in a take-away container for lunch tomorrow. Guaranteed saving of at least $150.

So you may have lived through that first scenario this time around. Still, there’s no point in beating yourself up over it with those red heels. You tell yourself you’ll do better next time to alleviate your guilt today, but really, will you do better when you are confronted by the next “must have” accessory in your favourite colour?

What can you do today to build a new neural pathway that makes you walk right on by a store that is screaming out your name to buy something? The temptation may always be there, so how do you learn to not heed its call?

Start by paying attention. Begin by recognising the feeling of not being good enough without that new outfit or toy – even though you felt more than adequate those few minutes before you heard that unmistakable “buy me” voice imploring you to take it home.

Then allow that feeling to motivate you into taking back control and, dare I say it, set up a realistic budget.

What does a realistic budget look like? That’s a whole topic in itself. The first hurdle is getting you motivated enough to find out.