A Depressing Forecast... and what can be done about it

[HiEquity]

I can remember way back reading Jan's books and being utterly convinced about the risk of relying on a pension in my dotage. Combined with a desire for Financial Freedom, this propelled me into the world of property investing in large measure. But then it never really entered my head that the pension was an option I wanted to consider - it would be just too small for an enjoyable life at an age where some comforts and care become more important than ever.

And the calculations behind super looked pretty unimpressive as well - a pretty tawdry retirement even with a relatively high income over my working life. I can't see how any young-ish person could reasonably draw any other conclusion than that they need to do "something else" in a pretty big way (like property investing) than the standard super / pension in order to have a comfortable retirement.

And yet, today I read this:

http://www.abc.net.au/radionational/programs/breakfast/monday-finance-with-sheryle-bagwell/5414518

We clearly have a spending problem that will only get worse as the population ages. One of the more surprising forecasts revealed by Joe Hockey last week is that four out of five Australians will still receive a full or part aged pension in 2050, despite all the billions of dollars in tax benefits for superannuation.

80% of Australians still on the pension by 2050? And yet, today we have $1.5 trillion in the superannuation system, enjoying massive tax protection advantages? What gives? After 70 years of having what was sold to us as a "you beaut" superannuation system, with almost tax free status, we still have 80% of the retirement population drawing a pension? It's the 80/20 rule gone nuts! That's a huge pool of people by then fighting over a diminishing sum of government money. I wouldn't like my chances...

If ever we needed an answer to the question of "why invest?", then I've got to say taking my chances in buying real estate looks to be a lot lower risk than getting stuck in that pool. Lets hope a few more Australians start to think the same way!

 

[DaveM]

Too many people dont get their super sorted out till its too late/not at all, so there isnt enough to survive on. And rather than let its citizens starve to death, the govt pays the pension regardless.

One of the perks of first world living. If you know there will be a pension handout safety net, wheres the incentive to be self funded and put the time/effort into managing finances.

I hear retirees talking about their super and how they have retired with 100k in it like that will last them forever. The rude shock comes a couple of years later when its gone and there are 20 years ahead of living

 

[Aaron_C]

It's a disgrace. The Government lacks the political will to implement means testing for the pension which will eliminate this leeching off the rest of us. Quite disappointing.

 

[Jen_PFR]

I must admit that all the financial planning that we do (my other half and I) basically assumes that there isn't a pension, and that we don't have any superannuation. That way, if everything goes pear shaped and the govt (whichever party is in power at the time) decides to change the superannuation legislation so they can access the funds, we are still in a reasonably sustainable position. Some call it fear mongering, some call it caution

 

[spludgey]

Failing to plan is planning to fail.

Unfortunately (or should that be fortunately for investors?) most people fail to plan.

 

[ok180]

Too many people dont get their super sorted out till its too late/not at all, so there isnt enough to survive on. And rather than let its citizens starve to death, the govt pays the pension regardless.

If they go ahead with the no retirement before 70 rule, super is even more pointless to me.

What are you going to do with a lump of cash like that when you are 70? You are basically one foot in the grave by then. It might be a good idea for the general population to be restricted like that but not for the kind of people you find on this forum who have gone their own way.

 

[sanj]

If they go ahead with the no retirement before 70 rule, super is even more pointless to me.

What are you going to do with a lump of cash like that when you are 70? You are basically one foot in the grave by then. It might be a good idea for the general population to be restricted like that but not for the kind of people you find on this forum who have gone their own way.

1) Wasnt it 70 for the pension that is being proposed? Just like you can currently access super from when youre i think 60 i assume you would be able to access it earlier even if the pension age was increased to 70

2) "Australian Bureau of Statistics (ABS) today released the highest life expectancy estimates ever recorded in Australia, reflecting record low death rates.

Director of Demography, Bjorn Jarvis, said "A boy born today could expect to live 79.9 years, while a girl could expect to live 84.3 years. For those approaching retirement age, say 65 years, males could expect to live a further 19 years and females a further 22 years".

"Australia's life expectancy at birth continues to be amongst the highest in the world. The combined male and female figure of 82.0 years, while a little lower than Japan and Hong Kong, is higher than Canada, New Zealand, the UK and the USA," said Mr Jarvis."

I wouldnt consider 70 to be 1 foot in the grave

I think super is brilliant if used correctly

 

[Joe D]

If they go ahead with the no retirement before 70 rule, super is even more pointless to me.

The Govt Increasing the eligibility age for the pension to 70 does not mean you can't retire earlier if you have the means.

The pensionable age is currently 67, but the highest super preservation age is 60 (if born after 1964).

However, make no mistake that govts will tinker with Super as well.

 

[ok180]

1) Wasnt it 70 for the pension that is being proposed? Just like you can currently access super from when youre i think 60 i assume you would be able to access it earlier even if the pension age was increased to 70

2) "Australian Bureau of Statistics (ABS) today released the highest life expectancy estimates ever recorded in Australia, reflecting record low death rates.

Director of Demography, Bjorn Jarvis, said "A boy born today could expect to live 79.9 years, while a girl could expect to live 84.3 years. For those approaching retirement age, say 65 years, males could expect to live a further 19 years and females a further 22 years".

"Australia's life expectancy at birth continues to be amongst the highest in the world. The combined male and female figure of 82.0 years, while a little lower than Japan and Hong Kong, is higher than Canada, New Zealand, the UK and the USA," said Mr Jarvis."

I wouldnt consider 70 to be 1 foot in the grave

I think super is brilliant if used correctly

The changes are coming Sanj, let the baby boomers get their hands on their super over the next decade, splurg it all and then the gov will come in and say sorry but like the pension you cant touch it till 70.

70 is very one foot in the grave, the average life expectancy might be late 70's but most people older than 60 are already carring problems by then quality of life is already diminishing for most.

 

[DaveM]

I personally would like a scheme where you can opt out of super and be given the equivalent cash to use on paying off core assets like ppor etc. Proviso is that you then waive any entitlement to a future pension.

Would have to be a limitation to stop people blowing their money on pokies/jetskis/hsv's but I would love an extra 10-15k pa in cash to invest (already have smsf but still restrictive)

 

[Peter_Tersteeg]

My parents just retired a few months ago, both are 72. My Dad's job involved extreme manual labor his entire life so I have a hard time accepting that most people can't work to the age of 70. All of my grandparents easily reached the age of 90 so I expect my parents will be around for another 20 years.

I've got no problem with increasing the retirement age. When the pension was introduced, the average life expectancy was several years above the retirement age. If you lived long enough to receive the pension you were ahead of the pack! As medicine has improved, lifespans have increased but the pension has not kept pace with it.

I see super as a risky proposition. It's been quite favorable tax wise since its inception but I fear this may not be the case in the future. There's a lot of money that our leaders see which could solve a lot of their problems, I would not be surprised if the make moves to get access to super via a lot of tiny tweaks to the system.

As a result, I'll provide for my own retirement outside of what the government and financial regulators will 'assist'. If I get anything else it will be a bonus.

 

[redwing]

Ties in with this thread Super?

Fees are in the news at present see "The $10 Billion Super Sting"

Also

According to the Association of Superannuation Funds of Australia, the average male 60-64 year old has $85,000 in superannuation assets. For women, who on average live longer, the disparity is even more stark ? most have just $59,000 in superannuation assets.

For those slightly older ? the 65-69 year olds, some of whom are already in retirement ? the figures are worse. Men in that age group have, on average, $77,000 in superannuation assets while women have $55,000.

 

[INVSTOR]

The changes are coming Sanj, let the baby boomers get their hands on their super over the next decade, splurg it all and then the gov will come in and say sorry but like the pension you cant touch it till 70.

70 is very one foot in the grave, the average life expectancy might be late 70's but most people older than 60 are already carring problems by then quality of life is already diminishing for most.

Agree, you won't be able to access compulsary super until age 70. I've got about $10,000 in super. In another 30 years I'm not expecting it to be worth much so have only ever thought as super as a 'little' bonus.

 

[wategos]

For me Super is an important pillar of retirement assets. Those retiring now haven't been in compulsory super as long so will have less assets, but the average fund size should increase over time.

I'm looking at Super being the second largest contributor to retirement funds after the share market (although all my super funds are in shares as well). Property is third, I don't see it as reliable in providing capital growth and income as shares are.

 

[Greg Reid]

Remember superannuation has not been in existence for that long, some of the major banks and corporates had a form of super for its executives and the public service had one, but for most workers, late '80's and early 90's was the start of compulsory superannuation. The starting level for compulsory super was only 3%. No wonder average balances are not high, especially where a 'balanced' fund is about 70% shares. Take the crash called GFC and it wiped out 50% in a very short space and we are only now getting back to pre GFC share market levels after nearly 5 years or more.

Workers now contributing 9.25% (will have to increase again to the perhaps needed 15% that Keating initially proposed) with 30 or 40 years of contributions may just be sufficient for many for retirement in 2040 and after.

Costello made some fundamental stuff-ups with super, with the main one being based on the premise of making it simpler, the allowing of withdraws tax free over 60 will come back and bite the government big time. Take your money out, invest in in your own home either improvements or upgrading, a pension free asset, no CGT implications (to you), can take a reverse mortgage and pull out additional living funds if required and the government pays the bills with a now full pension entitlement.

What a mis-match of policy to goals of forcing people to provide for their own retirement. Sure it took away all the fancy financial planners tricks of redraw and re-contributions but it has to be one area a future government will have to correct. Rest assured, changes will be made again to the superannuation rules. I think it is always wise to build an asset base independent of super and think of super as a bonus on retirement. It is after all, only a tax structure, nothing more.

Good luck in investing.

 

[Peter 14.7]

Way I see it, for those of us with IPs paid down, simply retire and reverse mortgage. If your equity portfolio is going up $100k a year and you pull down say $50k then you are still winning, $100k and breaking even.

Who says we have to leave it to my daughter?

One option, Peter

 

[The Fence]

Workers now contributing 9.25%

Ahem......Employers now contributing.....

 

[Richard Feynman]

I personally would like a scheme where you can opt out of super and be given the equivalent cash to use on paying off core assets like ppor etc. Proviso is that you then waive any entitlement to a future pension.

Would have to be a limitation to stop people blowing their money on pokies/jetskis/hsv's but I would love an extra 10-15k pa in cash to invest (already have smsf but still restrictive)

I am with you 100% on this concept. I don't imagine it's going to happen as it'd be thrown in the "too hard" basket, but it would be great. To avoid the poor deployment of that extra 9.25%, lets say to access it you also had to demonstrate a great savings and investment track record too.

 

[Success]

Would be great to see a 'revised' book by Jan Somers quoting today's property prices ...

 

[vbplease]

Ahem......Employers now contributing.....

Not if employers are advertising a slary package inclusive of super..

Another worry is the employability of a person nearing 70.. what if for some reason they had to apply for a new job in their 60's, what chance do they have?