WE often think of Australia as a young country but the fact is, we have an ageing population, and it's an issue that will affect us all.
The Federal Government's Intergenerational Report sets out some astonishing statistics regarding the ageing of Australia.
By 2050 it's estimated that one in four of us will be aged over 65 - up from one in ten today. That means there'll be greater demand for the age pension, but fewer people of working age to foot the bill.
As a guide, there are currently five people in the workforce to support every age pensioner, in just four decades that number is set to halve.
Projections like these are one of the key drivers behind the ongoing fine-tuning of our super system. The government is encouraging us to save for our own retirement rather than relying on a thinly stretched age pension budget.
I'm a big fan of superannuation but it doesn't have to be the only asset we have in retirement. The key thing is to look for investments offering long term capital growth. This way your money stays ahead of inflation.
Let's say for instance, that a retiree aged 60 sets aside $20,000 in a savings account. It's a very secure investment but there is no opportunity for capital growth. If the annual rate of inflation is 3.5%, by the time our retiree reaches 80, the spending power of his $20,000 will have halved. In effect, his wealth is going backwards.
That's why it's so essential to include assets offering capital growth in your retirement portfolio. Two popular choices here are property and shares.
A well-chosen property can be a good investment but it has some downsides for retirees. The first is that over time buildings deteriorate, often generating mounting repairs and maintenance bills.
The other shortcoming of property is that landlords can't normally access the money tied up in their investment unless they sell up altogether.
By contrast, a diverse portfolio of shares offers regular, tax-friendly income through dividends, plus long term growth. And if you need cash in a hurry, it's possible to sell a chunk of your share portfolio, usually instantly.
The downside to all growth assets, and this includes both property and shares, is that the market doesn't climb steadily. Over the last ten years we've seen downturns in both Australian shares and residential property. The last big one, of course, was brought on by the global financial crisis.
A market fall is unpleasant for anyone, but it can be devastating for retirees. That's where good retirement planning can be useful, helping retirees find the right mix of assets to achieve capital growth without being forced to sell investments in a market downturn.
Ageing is something we all face. Embracing super and other investments throughout our working life will mean enjoying a better lifestyle in our later years.
Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.
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