To fly in retirement, plan your own path
26 August 2019
Author: Jason Marler, Head of Actuarial, MLC
This article originally appeared in The Australian
When US air force pilots were struggling to control their planes in the late 1940s, officials were mystified. With 17 crashes recorded in a single day, it was happening too often to be pilot error but engineers frequently found no technical or mechanical defects. Attention finally turned to the physical design of cockpits back in the mid-1920s and whether the size of pilots had changed.
Using data from more than 4000 pilots, a researcher set out to determine how many pilots were average size. Using the 10 most relevant physical dimensions — including chest circumference, height and sleeve length — he plotted the size of this “average” pilot.
When he posted his findings, the laboratory was stunned to find that not one single pilot fit the average on all of the dimensions. It turned out designing a cockpit to fit everybody resulted in designing it to fit nobody.
Trying to play the law of averages with retirement planning is also a fool’s errand. Many of the 3.6 million Australians who have already retired are living longer, staying healthier and contributing to their communities well into their 70s and beyond.
This might mean some combination of working for longer, supporting a local cause, seeing the world and spending lots of quality time with the grandkids.
It’s time we said “hooroo” to the average older Australian because, like the average fighter jet pilot, the richness and diversity of life past the age of retirement means this person doesn’t exist. Where older Australians were once lumped together as an homogenous grouping, this stereotype has long since passed.
That’s why financial planning for your retirement must be grounded firmly in your own realities. The amount of money you’ll need to fund your lifestyle depends on a range of factors including where you live, the state of your health, whether you’re in a relationship and desired levels of discretionary spending.
Citing research from various Australian universities, Milliman’s Retirement Expectations and Spending Profiles 2019 indicate that how you live is partly determined by where you live.
People in Canberra, for example, spend more than 15 per cent above the national average, while those in Hobart are more than eight per cent below it. Living in the city really is more expensive than living in the country with an almost 11 per cent difference by the later years of retirement.
The location factor is not just relevant for city versus country living. Assessing expenditure in individual suburbs also paints a different picture of retiree behaviour, with Milliman research showing double the spend in Sydney’s Mosman than in Auburn.
For most older Australians, average spending on discretionary categories like leisure and travel are higher in the early years of retirement but decrease as health issues arise. So it should come as no surprise that healthcare spending is the one spending category that bucks the trend and increases on average throughout the retirement years. Medicare helps but there are still out of pocket expenses for specialist appointments and pharmaceuticals that need to be factored in.
Older Australians have a tendency to cut their cloth according to their means. Beyond essential spending on food, shelter and clothing, they allocate discretionary spending to the things in life they enjoy most.
Whatever your means, Milliman’s research shows that the split between essential and discretionary spending doesn’t change much throughout retirement. For those between the ages of 65 and 69 years, discretionary accounts for 52 per cent of spending. This declines slowly over time to account for 46 per cent of spending beyond the age of 85.
It’s never too late to take action but there’s no substitute for professional advice when it comes to navigating complexity and minimising uncertainty in your financial future. There’s no average Australian but there are millions of individual stories to be written. What’s yours going to be?
Disclaimer: The information contained in this communication is general in nature and does not take into account your objectives, financial situation or needs. You should consider whether it is appropriate for your personal circumstances prior to making any investment decision.