Extending the retirement age
Will this lead to more taxpayers or more unemployment?
On the back of the recent news that Australia’s federal treasurer, Joe Hockey, i s raising t he national retirement age from 65 years of age to 70, many other First-World countries are following in Australia’s footsteps. Germany is set to raise the retirement age from 67 to 76 and in Spain and Greece the retirement age has recently been increased from 65 to 67 years of age. The UK has increased the age to 68. Apart from the obvious need for individuals to plan for a later retirement, the effects are far reaching – more so than just being able to save for a few extra years.
Says Sandy van der Zanden of Pioneer Financial Planning: “With the continued medical advances people are living longer today. This can have a devastating impact on your retirement planning as the cost of healthcare increases drastically in retirement – people are living longer but with an increased need for ongoing medical treatment and care.
“The extra years of income needed due to increased longevity also come into play when planning your retirement. Delaying retirement by even a year or t wo can have a signif icant impact on your finances in retirement. The effect is twofold: you can preserve capital while you are still working as you don’t need to draw an income, and you have extra time to save and invest funds for your retirement years to come. This may seem obvious but the effects can be quite significant.
“For example, take an employee earning R30 000 per month. Over one extra year of working, that is R360 000 that has not been drawn from capital [as you are earning an income]. In addition let’s say you save 15% of your income, which equates to R54 000 over the year. That