16 October 2015
by Ross Elliott
Old, poor and lonely: the other side of the ageing story
Much is being made of opportunities for retirement living and aged care due to our ageing population. For those who retire with a healthy balance sheet there are increasing choices within a fast evolving 'for profit' industry. But the reality for a majority will be ongoing dependence on the aged pension and insufficient government or non-profit places to accommodate them.
The basics of our ageing population are easy enough to understand. First, there will be more of them – with Australians aged 65 plus the fastest growing cohort in coming years, rising from 14% of the population now to around one in five Australians by 2033. In terms of actual numbers, the current estimate of around 3.5 million Australians aged 65 plus will rise to around 6.3 million in the next 20 years – an increase of around 2.8 million people. I will be one of them.
For the aged care and retirement living industry, this is a future demand profile virtually immune from market cycles. You can't stop people aging, and as we live longer, there will be more people ageing than ever before. Life expectancy in 1970 was 70 years of age. It's now 82, and still climbing. If you are currently aged 65, you can (on average) expect to live another 19 years for males, and 22 years for females, because ironically the longer you live the greater your life expectancy becomes.
In response, sections of the retirement living and aged care industry are transforming rapidly. What was once a cottage industry run mostly by charitable, religious or non-profit groups, is rapidly evolving into a very professional industry run by private or publicly listed businesses, looking for greenfield expansion, acquisition or redevelopment opportunities to grow portfolios and improve operational efficiencies. Many of these businesses are well positioned for ongoing growth in scale and profits and will be cheered on as market darlings by investors and an increasing number of people reliant on their growth for work. Including me, hopefully.
At the same time it is easy to lose sight of a more sobering market reality. Expansion in the aged care and retirement living industry is being led by businesses who are catering in the main for the upscale end of the market. In other words, old people with money. A significant proportion (and perhaps a majority) of old people won't have the funds needed to enter private retirement living or aged care, or if they do, their funds might be depleted because they live longer than they budgeted for. Don't get squeamish on me at this point, because ageing is all about economics and budgets.
So here are some financial angles on the ageing demographic which reveal a worrying future policy landscape for those not at the premium end of the retiree market.
Today, roughly one in four people aged 65 and over are either renting their own home, or still paying off a mortgage. The proportion who own their own home outright is falling, and based on falling rates of home ownership amongst Australia's current generation of 30 somethings, the proportion who own their own home by say 2050 will be significantly less.
Then there is superannuation. The average current super balance of someone aged 60 plus and not yet retired is just $95,000. The proportion of people aged 65 and over who have no superannuation at all is around 65%. Yes, this is changing as more superannuants retire, but superannuation balances are not what you'd think. The average superannuation balance of someone aged between 70 and 74 – the average age of entry to a retirement village – is just $102,000 but this plummets to just $38,000 for the 75 to 79 age group. Or put another way, the number of Australians aged 50 and over with a super balance of more than $500,000 is just 5%.
The biggest asset most current or future retirees will have is their own home, but remember that one in four are either renting or still paying off a mortgage. There are 13.5% of Australians aged 65 plus who are renting their own home. For those who own their own home, the average value of this (in 2012) was around $500,000.
In terms of incomes, two thirds of people currently aged 65 plus have a weekly income of less than $400. This is heavily influenced by the age pension, which one in four current retirees receive at the full rate (being $430 a week). A further quarter receive a part pension, while only a third are self-funded. Remarkably some 18% of retirement age Australians are still employed, but whether this is of necessity or by choice I don't know.
So the economic picture here is one where a significant proportion of Australian retirees, and by definition also those who will need aged care, generally have insufficient assets, savings or financial means to fund the lengthening number of years where they won't have an income and where their costs of care and accommodation will increase.
This is a market segment no one seems to be talking about. I presume there is an assumption that government or religious/charity/not for profit groups will continue to cater for this market. But the numbers are such that many non-profit groups won't have the financial resources to meet this growing demand as many are struggling with financing existing operations, let alone expansion. Which leaves the government, meaning the taxpayer, and the reality here is that there will be increasingly fewer taxpayers of working age relative to the number of aged dependents, meaning higher taxes. Sorry hipster generation, it's looking pretty ordinary for you.
So what's going to give? Will we see a return to multi-generational housing where grandparents, parents and children live under the same roof? There will no doubt be some of this, but it's hard to see how our social mores will change to the degree needed to relieve pressure on demand. What's really needed is an affordable housing solution for retirees and Australians in need of aged care, for whom the commercial part of the market will remain beyond reach.
Given our wholesale failure to address housing affordability problems for working age Australians and young families, it's difficult to be positive about any meaningful solutions being found for the other end of the age spectrum. Keep that in mind when you next look at those marketing images of healthy looking silver haired retirees with perfect skin, wearing pastel coloured cashmere jumpers and big smiles (and their own teeth), holding hands as they walk on the beach… they are far from reality for the majority.