As many as 10% of all retirees could be forced to fall back onto the aged pension, according to new research from The Actuaries Institute.

Two new studies released today, one by the CSIRO and one by a private research firm show that Australia’s retirement system is not sustainable for people living longer than the average life expectancy. The studies also show that some retirees are drawing down their super at unsustainable rates and will run out of super.

Between the ages of 75 and 85, about one-fifth of balances are being drawn down at more than 10% of their balances, which is not sustainable for those who live longer than average,” the Institute says.

Those retirees will be forced to rely even more on government funding and the age pension.

The good news, according to Anthony Asher from the Actuaries Institute retirement income working group, is that at least half of all pensioners take a very financially conservative approach in retirement – only drawing down the minimum required balance.

If you don’t want to end up having to rely on the pension, then you also need to make sure you have enough funds in superannuation to start with.

That means building a substantial next egg while in the accumulation phase.

One way to do that is by investing in the stock market – either in exchange traded funds (ETFs), listed investment companies or directly into company shares. Vanguard research has shown that since 1970, the Australian share market has returned 9.7% on average per year.

We highlighted four companies earlier today that investors could sock away for a decade, including Telstra Corporation Ltd (ASX: TLS), Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES), but they are by no means the only stocks.

Foolish takeaway

If you haven’t started building your retirement funds, now might the perfect time to start. And if you are saving into your super – some investors might want to consider increasing their savings. ASIC’s MoneySmart website has some useful calculators investors can use to see how much they need to retire comfortably.

 

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Motley Fool writer/analyst Mike King owns shares in Telstra, Woolworths Limited and Wesfarmers. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.