Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 21

The financial life cycle paradox

Changing lifestyles combined with increasing life expectancy have outgrown traditional retirement planning models. But living longer does not translate into financial freedom. The natural conclusion is that you can work longer and therefore have more savings for your retirement. But the paradox is that people have less income-earning years and more education years and a better education does not necessarily lead to an improved financial position.

Increased life expectancy

Over the last 50 years, life expectancy has increased by around 12 years. A child born today will live until they are in their early 90s, and possibly much longer. The reasons Australians are living longer include better diet, improved medicines and living conditions.

In addition to everyone living longer, people are delaying significant life events. Australians are getting married and starting families later and having fewer children. Higher property costs means that children are staying at home longer and this is reflected in the increasing age of first home buyers. Many of these decisions regarding lifestyle are made because of someone’s financial position.

Economic structural changes

There have also been structural changes to the Australian economy that are impacting on an individual’s ability to save and invest for their future. Notably, Australia has increasingly become a high cost of production economy and to compete internationally we must improve our skills and qualifications. Australians are therefore spending more time at school and in tertiary and vocational training at a financial cost to themselves. Even with Government assistance to fund tertiary education many young adults are starting their working years indebted.

Another major structural change occurring is the increasing trend to casual or part time work.  Until the early 1990s it was common to have a job with one organisation for life. Today, this is rare and it is expected that people will change not only jobs four or five times in their career, but also the industry. This trend to part time or casual work, particularly amongst older workers, means their pre-retirement incomes are lower, limiting their ability to save.

Wealthmaker Financial Services has analysed these trends and structural changes, producing some telling ratios that have implications not only for financial institutions, but every Australian.

Sources: CIA World Fact Book, World Bank, ABS School Statistics Census, Australian Bureau of Statistics.
Averaging has been applied to cover the differences, e.g. males versus females.

The table shows that a person born in 1960 was expected to live to 71, today that person’s life expectancy has been revised to 82. The table then shows how those years will be spent. The table contains three important points for all of us:

1. Income earning/life expectancy

In 1960 the average Australian spent 61.7% of their life working, whereas today it’s only 42.7%.  This means that Australians have less time in the workforce, and therefore a reduced timeframe to save and invest for their retirement.

2. Retirement/life expectancy

In 1960 the average Australian was expected to live for 8 years after they retired. Today it’s around 22 years. For many in their pre-retirement years, they are unable to accumulate any more wealth because they are working part-time, even though they may wish to work full time. This means that their income is being used for living expenses.

3. Income Earning/retirement

In 1960, an Australian had 5.5 income-earning years to save or invest for each retirement year. Today the ratio is 1.6 earning years. An individual must save enough during their income-earning years to pay for 22 years of expected retirement.

Another factor frequently overlooked is the increasing tertiary education costs. Even with HECS and VET fee assistance, most children today when they start their working lives are indebted and often have to pay off this debt before they take out a mortgage. This is unlike the baby boomers, many of whom received free tertiary education, so they started their working lives debt free.

As our income-earning years are decreasing and our retirement years are increasing the current level of superannuation savings is insufficient. The Federal Government is taking some action to address this by increasing the superannuation levy, however, this only goes part of the way.  Australians will have to work longer and may have to accept a lower standard of living both before and in retirement.

 

Michael McAlary is Founder and Managing Director of WealthMaker Financial Services.

 

RELATED ARTICLES

Putting off that retirement speech

So, we are not spending our super balances. So what!

Why life expectancy numbers are widely misunderstood

banner

Most viewed in recent weeks

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Are franking credits hurting Australia’s economy?

Business investment and per capita GDP have languished over the past decade and the Labor Government is conducting inquiries to find out why. Franking credits should be part of the debate about our stalling economy.

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

The rubbery numbers behind super tax concessions

In selling the super tax, Labor has repeated Treasury claims of there being $50 billion in super tax concessions annually, mostly flowing to high-income earners. This figure is vastly overstated.

Latest Updates

Investment strategies

Trump's US dollar assault is fuelling CBA's rise

Australian-based investors have been perplexed by the steep rise in CBA's share price But it's becoming clear that US funds are buying into our largest bank as a hedge against potential QE and further falls in the US dollar.

Investment strategies

With markets near record highs, here's what you should do with your portfolio

Markets have weathered geopolitical turmoil, hitting near record highs. Investors face tough decisions on valuations, asset concentration, and strategic portfolio rebalancing for risk control and future returns.

Property

Soaring house prices may be locking people into marriages

Soaring house prices are deepening Australia's cost of living crisis - and possibly distorting marriage decisions. New research links unexpected price changes to whether couples separate or silently struggle together.

Investment strategies

Google is facing 'the innovator's dilemma'

Artificial intelligence is forcing Google to rethink search - and its future. As usage shifts and rivals close in, will it adapt in time, or become a cautionary tale of disrupted disruptors?

Investment strategies

Study supports what many suspected about passive investing

The surge in passive investing doesn’t just mirror the market—it shapes it, often amplifying the rise of the largest firms and creating new risks and opportunities. For investors, understanding these effects is essential.

Property

Should we dump stamp duties for land taxes?

Economists have long flagged the idea of swapping property taxes for land taxes for fairness and equity reasons. This looks at why what seems fairer may not deliver the outcomes that we expect.

Investing

Being human means being a bad investor

Many of the behaviours that have made humans such a successful species also make it difficult for us to be good, long-term investors. The key to better decision making is to understand what makes us human and adapt.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.