Are the French right - should we retire at 62?

France’s 50-somethings have been protesting on the streets of Paris in recent weeks. They’ve been mobilised into action by the threat of an increase in the minimum retirement age to 64, up from 62 years at present. And they’ve been joined by protesters of all ages, concerned at the possibility of having to work an extra two years before being eligible for a state-funded pension.

The proposed pension reform is designed to stave off serious financial strain on the nation’s retirement system. Like many developed nations – including Australia, France has an ageing population. Fifty years ago, France had four workers per retiree. Today, the ratio is about 1.7 workers to each retiree, and this will shrink further in the future.

Here in Australia, we also face the challenges of an ageing population. As a result, eligibility for the age pension has steadily risen from age 65, and will reach age 67 from July this year for those born after 1 January 1957^[1].

These increases are an economic essential. A report by superannuation industry body ASFA[2], shows that in 1980 close to 10 million working age Australians supported the nation’s 1.4 million over-65s. Today, there are about four working age Aussies for each retired person. By 2040, that ratio will fall to about 3:1.

When do Australians retire on average?

An uptick in pension eligibility age is never welcome news, and that’s understandable.  After 40 or so years at the coalface it can be galling to be asked to work for longer. But relying on the age pension to fund your retirement is a risky business. It makes a lot more sense to grow a pool of super and other investments through your working life. That way, decisions around when you retire are made on your own terms, and not dictated by the availability of a meagre government pension.

To understand why this personal honeypot of funds is so important, it’s worth stressing that the old concept of ‘retirement’ as an abrupt end to full-time work and the beginning of full-time leisure is no longer accurate. We are living longer, enjoy better health as we age, and we expect more from our retirement than in the past. Today’s retirees are more likely to plan treks in Tibet or start their own consultancy rather than pencil bingo dates in their diary. And it’s a no-brainer that a high quality – and potentially lengthy – retirement calls for some solid funding.

Overlaying all this is the reality that even the best laid plans for retirement can easily be derailed. Data from the Australian Bureau of Statistics[3] (ABS) shows that while many Australians plan to retire at age 65, the age we actually step aside from the workforce is considerably younger. The average retirement age is 55.5 years. That’s well below the expectations of many people, and seven years younger than the official retirement age in France!

The 10-year gap between when we’d like to retire, and when we actually retire reflects the curveballs we can face. A variety of triggers can force a premature exit from the workforce including poor health, redundancy, and the need to become a full-time carer – often for an ageing family member.

Forced retirement can be challenging. However, a 2018 study by State Super[4] found that among younger retirees including those who exited the workforce voluntarily, concerns around the high cost of living, lack of identity from not being employed, and having a smaller social circle, all have the power to take the gloss off what should be a positive time in our lives[5]. The report also notes that one in five respondents were planning to re-enter the workforce or were seriously considering it, with many motivated by financial pressures.

Having a pool of investments provides choice

The main point is that no matter whether you live in Australia, France or elsewhere, the official retirement age is little more than a guideline. It may mark the start of age pension eligibility, but personally, I won’t be circling the date on a calendar at which I can start to live on $468 per week – the current maximum basic pension for singles.

It simply makes better financial sense to grow our super, invest in assets outside of super, and reduce debt, especially as we head into our 50s. Having a decent pool of funds to draw on lets you handle the unexpected – be it forced redundancy or the need to dial down your working week for health reasons. 

More importantly, this pool of wealth provides choices: the freedom to decide if – and when –  you will switch from full-time to part-time work; choices around the type of retirement lifestyle you want to lead; and the freedom to lend a financial helping hand to younger family members if that’s a priority for you.

I love my career but I’m also looking forward to retirement – and I want it to be as fulfilling as my working life. At the same time, I know it’s worth planning for the possibility that I could have to exit the workforce earlier than I would like to, which may mean living on super and other assets for longer.

Either way, there’s no getting around the fact that saving for retirement means giving up some cash today. The earlier you start, the less you need to tuck away thanks to the power of compounding returns.

7 ways to build your super

If you’re looking for inspiration on ways to grow your super for retirement, here’s a quick look at 7 strategies to top up your fund:

• Personal contributions – up to $27,500 of before-tax super contributions can usually be claimed on tax^[6]. This annual limit includes your own salary sacrifice contributions plus the bosses’ compulsory contributions. You can also make catch-up contributions of unused super contributions from up to five previous years if your total super balance is less than $500,000. Your tax adviser can provide details.
• Spouse super rebate – your spouse/partner may be able to claim an 18% tax offset by making a contribution of up to $3,000 to your super fund if you’re not working or you earn below $37,000 annually[7].
• Contributions made from after-tax money – you may be able to add up to $110,000 annually to your fund in after-tax (non-concessional) contributions[8]. They can’t be claimed on tax, but the contributions aren’t taxed once they hit your fund. 
• Downsizer contributions – sell a home you’ve owned for at least ten years, and from age 55 you can add up to $300,000 of the sale proceeds to super ($300,000 each if you own the home with your spouse/partner)[9].  
• Government co-contributions – make a personal super contribution up to $1,000, and if you earn between $42,016 and $57,016 you may be eligible for a government co-contribution worth up to $500[10].
• Salary sacrifice – ask the boss to redirect part of your before-tax pay into super. It can be a very tax-friendly way to grow your nest egg.
• Cash-back sites – it’s possible to grow your super when you shop through cash-back platforms such as Boost Your Super and Super-Rewards. When you shop online via these sites, you can earn a cash reward – potentially as much as 15% of the purchase, that's paid straight to your super fund instead of your bank account. Your tax professional can advise on whether these types of contributions can be claimed on tax.

None of us know what the years ahead hold in store. You could work until age 67, you may decide to keep going for longer, or your working life could be cut short. No matter what happens, with the backing of a diverse investment portfolio you can face the future with confidence, without the need to take to the streets if the pension rules are changed.

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