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Most retirees are now self-funded and this has implications for ASX shares

The majority of new Aussie retirees don’t need to depend on government payments to cover their living expenses and the number of self-funded retirees are only expected to increase.

The new findings by Challenger Ltd (ASX: CGF) and reported in the Australian Financial Review, found that more than half of 66-year-olds couldn’t qualify for the age pension at the end of 2018 as their assets and income were too high, while another 20% of the group were on a part-pension.

Only a quarter of those aged 66 were on a full pension, and this number is likely to drop further as Aussies know we can’t depend on the government to provide for a comfortable retirement when we get to our golden age.

Growing trend towards self-funded retirement

The chairman of retirement income at Challenger, Jeremy Cooper, said in the article that this is proof that our superannuation system is working.

But I suspect many ASX investors already know this as one of the biggest reasons why everyday Aussies invest in ASX shares is to build a comfortable nest egg (of course hitting a few 10-baggers along the way is great too).

Aussies can apply for the means-tested age pension when they hit 65.5 years but this will increase to 66 years on July 1.

The AFR reports that the average consolidated super balance for singles aged 60 to 64 (approaching retirement) is $300,000, and for households it is $400,000 in FY17. Challenger believes this will increase to $600,000 for households in five-years.  

ASX income shares can be the best way to save for retirement

Investing in quality stocks that pay a dependable dividend is one of the best forms of “savings”, particularly in this day and age when term deposits and other credit assets are yielding so little.

This is one reason why favourite income stocks like the Commonwealth Bank of Australia (ASX: CBA) share price, Ausnet Services Ltd (ASX: AST) share price and GPT Group (ASX: GPT) share price have performed so well in recent times and are trading at or close to 52-week highs.

Even some of the outperformance of our big miners like Rio Tinto Limited (ASX: RIO) and BHP Group Ltd (ASX: BHP) can be attributed to this hunt for yield – it isn’t only about the surging iron ore price, although that is boost confidence that these stocks can keep distributing cash back to shareholders.

Given where we are in the market cycle, I suspect it will be income stocks that will take the lead from high-growth stocks as valuations are looking stretched and I think we will see a number of profit disappointers at the August reporting season.

This means high price-earnings (P/E) stocks could struggle more in a weakening profit environment compared to the relatively more defensive income stocks.

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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, Commonwealth Bank of Australia, and Rio Tinto Ltd. Connect with him on Twitter @brenlau.

The Motley Fool Australia owns shares of and has recommended Challenger Limited. 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 Scott Phillips.

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