When it comes to retirement saving, demographics is destiny. Mortality rates continue to improve faster than expected, and there is more than a 70 per cent chance that at least one person in a retired couple will live to the age of 90.
The United Nations has said that the first person to live to 150 is already alive.
In Australia, compulsory superannuation was introduced in 1992, but initially at only three per cent of gross income. Most people have not had time to build sufficient superannuation to last through 30 years of retirement, with an estimated 80 per cent expected to rely on a part aged pension.
This might have been an acceptable strategy for a comfortable retirement if the mining boom driving a healthy economy and tax base had continued. But those halcyon days are over, and the annual budget deficit is now $60 billion and rising.
Anyone who plans to rely on government services should consider that the single aged pension is only $425 a week and from 2017, the eligibility age will increase to 67 (and will head higher).
Demographics also predicts that the ratio of the number of workers to retired people will continue to fall, from around five now to about 2.5 by 2040.
Older people spend less on goods and services than young people who buy houses and start families, which will become a drag on Gross Domestic Product as the population ages.
So there is no guarantee that tax revenues in 20 or 30 years will be sufficient to sustain pensions (and health and education) at their current levels, without significant intergenerational conflict.
Hundreds of billions of debt will remain unpaid for subsequent generations, who may look at the baby boomers and ask why they did not save enough to finance their own retirements.
Financial literacy and management of investments are as much a necessary life skill as looking after one’s health. Yet only about 20 per cent of Australians have a financial adviser, and the recent poor media coverage of the advice industry will do nothing to improve this.
The free newsletter, Cuffelinks, provides independent investments insights each week. It is written by market professionals who share useful strategies without flogging products.
It presents ideas to improve understanding of investments markets, especially for the one million people who are trustees of their own Self Managed Super Funds and have legal responsibilities to keep up to date on market trends and opportunities.
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