Are we all mentally prepared for when the Government advises us we must keep working until age 70 or beyond?

A lot has changed since the Age Pension was introduced in 1908.  Back then far fewer people lived to retirement age (the average life expectancy was 55.2 for males and 55.8 for females) and life expectancy for those retirees who reached Age Pension age was much shorter than today as shown in the following table:

LIFE EXPECTANCY (ADDITIONAL YEARS OF LIFE) FOR PEOPLE AT SELECTED YEARS OF AGE
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…………………………..Males                      Females
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…………….@0 @25 @45 @65 ..@0 @25 @45 @65
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1881-1890 47.2 37.1 23.0 11.1 50.8 39.7 25.6 12.3
1891-1900 51.1 38.9 24.0 11.3 54.8 41.7 26.7 12.8
1901-1910 55.2 40.6 24.8 11.3 58.8 43.4 27.6 12.9
1920-1922 59.2 42.7 26.0 12.0 63.3 45.7 29.0 13.6
1932-1934 63.5 44.4 26.9 12.4 67.1 47.2 29.7 14.2
1946-1948 66.1 45.0 26.8 12.3 70.6 48.7 30.5 14.4
1953-1955 67.1 45.5 27.2 12.3 72.8 50.2 31.4 15.0
1965-1967 67.6 45.4 27.0 12.2 74.2 51.2 32.3 15.7
1975-1977 69.6 46.9 28.3 13.1 76.6 53.1 34.0 17.1
1985-1987 72.7 49.5 30.8 14.6 79.2 55.4 36.1 18.6
1995-1997 75.6 51.8 33.1 16.1 81.3 57.1 37.7 19.8
2004-2006 78.7 54.7 35.7 18.3 83.5 59.2 39.7 21.5
2007-2009 79.3 55.2 36.3 18.7 83.9 59.5 40.1 21.8
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Source: ABS Australian Historical Population Statistics 2008 (cat. no. 3105.0.65.001); ABS Deaths, Australia, 2009 (cat. no. 3302.0)

 The dilemma we all face now is that the Australian Government is unable to fund the Age Pension in its current form and things will need to change. 

 The Australian Government is likely to  progressively extend the retirement age and reduce Age Pension entitlements.   These changes will cause everyone to dramatically adjust their expectations and people will need to start saving significantly more over time in a low fee environment to eventually fund the lifestyle they each aspire to in retirement.

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Share markets have been on the rise in the last 12 months but where to from here?

A lot of commentators and investment managers are a bit bullish on markets at the moment. From my experience this is a good indicator that investors should take a breathe and have a think about some of the downside risks if they are fully invested.

It is true that interest rates around the world are low and as we all know this is because policy makers are trying to stimulate economic growth. So far the strategy is working but it bothers me a lot that eventually interest rates have to go up and when this occurs markets could come under significant pressure.

Here in Australia the company profit reporting season has been good with profits and the outlook improving, and the dollar may fall a little further which will help exporters (as long as China keeps growing reasonably strongly). We are however seeing some job losses which could be a problem if it gathers momentum.

A part of the reason for sharemarkets rising has been low cash rates which has caused investors to turn to shares to try and get a higher return. I suspect share markets may end the year higher but when the US Federal Reserve indicates more strongly that their stimulus plan is ending markets could do anything.

If you take the time to reassess your risk profile in 2014, get some good advice and think carefully about whether you are taking more risk than you need or want to. Do this regularly as there are risks out there, and always remember you will never go broke taking a profit.