The fast-approaching ‘silver tsunami’ set to hit the Australian economy
As 710,000 Australians choose to retire in the next five years, there are serious implications for the economy on the horizon
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Australia is fast approaching a ‘silver tsunami’ that will bring with it significant socio-economic challenges for the country says the Retirement Living Council (RLC), a division of the Property Council Australia. RLC Executive Director Daniel Gannon said the council is concerned about housing affordability for older Australians and the provision of enough housing options, such as retirement villages, to allow for an affordable and comfortable lifestyle after they stop working.
There are 4.2 million retirees in Australia today, and another 710,000 people intend to retire over the next five years, according to new data from the Australian Bureau of Statistics (ABS). Over the next two years, 226,000 people intend to retire, which is almost 100,000 more than the number of people who retired between FY21 and FY23.
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The average age at retirement among Australia’s current cohort of retirees was 56.9 years, according to the data. However, the average age that most people intend to retire is 65.4 years, which is about 18 months before they become eligible for the age pension at 67 years of age.
On average, women retire sooner than men, but they are retiring later than in previous years. In FY23, the average age at retirement among female retirees was 54.7 years, up from 54 years in FY21. Men are also retiring slightly later with their average age at retirement now 59.4 years, compared to 59.3 years in FY21. Over these two years, Queensland saw the greatest increase in its retiree population, up 32,000 to 860,000. New South Wales had the largest retiree population at 1.3 million.
The ABS said the main factor influencing someone’s decision about when to retire was financial security. In FY23, the most common reason for deciding to retire cited by 31% of those surveyed was reaching the retirement age (i.e., pension age) or becoming eligible to access their superannuation. Most Australians can’t access their superannuation until they reach their preservation age. This age varies depending on the age of birth but ranges from 55 years for those born before 1 July 1960 to 60 years for those born after 30 June 1964.
The second most common reason behind retiring was sickness, injury or disability (13 percent). The next most common was being retrenched, dismissed or not being able to find work (5 percent). In these cases, financial security may not be assured and retirement becomes more of a forced decision. Currently, the age pension is still the main source of income for most retirees, with superannuation the second most common main source of income.
Given financial security is a key concern among those nearing or at retirement age, Mr Gannon said governments needed to ensure there would be enough suitable and affordable housing options for retirees as their numbers grow. “Unfortunately, a rapidly growing number of Australians are retiring with mortgage debt while the aged pension remains the main source of income for most retirees. Units in retirement communities are priced on average 48 percent lower than median house prices in the same postcode, meaning these communities can help address retirement income challenges.”
Mr Gannon said the recent Federal Budget contained no housing plan for older Australians amid today’s housing supply and affordability crisis. “While [the increase in] Commonwealth rent assistance is welcome news for some Australians, the existing eligibility thresholds exclude the majority of people living in affordably priced retirement units,” he said.
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Continued stagflation and cost of living pressures are causing couples to think twice about starting a family, new data has revealed, with long term impacts expected
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Australia is in the midst of a ‘baby recession’ with preliminary estimates showing the number of births in 2023 fell by more than four percent to the lowest level since 2006, according to KPMG. The consultancy firm says this reflects the impact of cost-of-living pressures on the feasibility of younger Australians starting a family.
KPMG estimates that 289,100 babies were born in 2023. This compares to 300,684 babies in 2022 and 309,996 in 2021, according to the Australian Bureau of Statistics (ABS). KPMG urban economist Terry Rawnsley said weak economic growth often leads to a reduced number of births. In 2023, ABS data shows gross domestic product (GDP) fell to 1.5 percent. Despite the population growing by 2.5 percent in 2023, GDP on a per capita basis went into negative territory, down one percent over the 12 months.
“Birth rates provide insight into long-term population growth as well as the current confidence of Australian families,” said Mr Rawnsley. “We haven’t seen such a sharp drop in births in Australia since the period of economic stagflation in the 1970s, which coincided with the initial widespread adoption of the contraceptive pill.”
Mr Rawnsley said many Australian couples delayed starting a family while the pandemic played out in 2020. The number of births fell from 305,832 in 2019 to 294,369 in 2020. Then in 2021, strong employment and vast amounts of stimulus money, along with high household savings due to lockdowns, gave couples better financial means to have a baby. This led to a rebound in births.
However, the re-opening of the global economy in 2022 led to soaring inflation. By the start of 2023, the Australian consumer price index (CPI) had risen to its highest level since 1990 at 7.8 percent per annum. By that stage, the Reserve Bank had already commenced an aggressive rate-hiking strategy to fight inflation and had raised the cash rate every month between May and December 2022.
Five more rate hikes during 2023 put further pressure on couples with mortgages and put the brakes on family formation. “This combination of the pandemic and rapid economic changes explains the spike and subsequent sharp decline in birth rates we have observed over the past four years,” Mr Rawnsley said.
The impact of high costs of living on couples’ decision to have a baby is highlighted in births data for the capital cities. KPMG estimates there were 60,860 births in Sydney in 2023, down 8.6 percent from 2019. There were 56,270 births in Melbourne, down 7.3 percent. In Perth, there were 25,020 births, down 6 percent, while in Brisbane there were 30,250 births, down 4.3 percent. Canberra was the only capital city where there was no fall in the number of births in 2023 compared to 2019.
“CPI growth in Canberra has been slightly subdued compared to that in other major cities, and the economic outlook has remained strong,” Mr Rawnsley said. “This means families have not been hurting as much as those in other capital cities, and in turn, we’ve seen a stabilisation of births in the ACT.”
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