Longer Lives Strain Australian Retirement Savings Amid Uncertainty
As Australians approach retirement, they may face a lengthy period of relying on their superannuation, potentially spanning nearly four decades. According to research from Challenger’s Institute for Lifetime Income, increased life expectancy often coincides with people leaving work earlier than planned.
A 65-year-old couple now has a 43% chance that at least one partner will live to 95, while people who stop work because of illness or injury retire at an average age of 57, around seven years before voluntary retirees.
Retirement environment shifting
This convergence of factors can result in a reduced timeframe for accumulating superannuation and an extended period during which it must be drawn upon.
Jonathan Kearns, chief economist at Challenger, notes that the uncertainty surrounding both the commencement and duration of retirement poses significant planning challenges.
“The two biggest unknowns in retirement planning are when you’ll stop working and how long you’ll live. Both can have a significant impact on how much money you’ll need,” Kearns said.
“Someone who expects to retire at 64 but is forced to leave work at 57 could face seven additional years without employment income. If they then live into their nineties, their savings may need to stretch across almost four decades,” Kearns added.
Increasing life expectancy
The report, Demographics are destiny, but individuals face uncertainty about retirement, reveals that life expectancy at 65 has increased by about eight years since the early 1970s.
Currently, a 65-year-old woman can expect to live to 89, while a man can expect to live to almost 88. However, individual outcomes vary, with 20% of men and 29% of women expected to reach at least 95.
It is essential to note that longer lives do not necessarily translate to more years of good health. The report found that healthy life expectancy has not increased at the same rate as overall longevity, potentially increasing the share of retirement spent with significant health issues.
Predicting retirement timing is also challenging. In 2024, individuals who retired between the ages of 50 and 69 averaged just over 62 in 2024, while those who had expected to retire that year had planned on an average age of 63.5.
Those who retired due to illness or injury did so at an average age of 57, while those who retired after retrenchment averaged 59; together, the two groups accounted for more than one-fifth of retirees.
“That’s a substantial financial challenge, particularly when inflation, investment returns, and household circumstances can change considerably over such a long period. It means Australians need to plan for a range of retirement outcomes, rather than assuming their savings only need to last for an average lifespan,” Kearns said.
Evolution of work and retirement
The transition out of work is also becoming less distinct, with more older Australians working part-time and drawing on super while still employed.
Almost three-quarters of working women aged over 65 were employed part-time, compared with close to 45% of men in the same age group, the report found.
Nick Hamilton, managing director and chief executive of Challenger, notes that the size of Australia’s superannuation pool does not, by itself, guarantee secure retirement outcomes.
“Australia has spent more than three decades building one of the world’s largest pools of retirement savings. However, the size of Australia’s superannuation system becomes largely irrelevant in retirement.
“What matters is the individual. Great retirement outcomes are determined by the confidence that their savings will last their lifetime and the confidence to spend their income without fear,” Hamilton said.
