How the budget affects your retirement.
We are consistently told we live in the lucky country, yet constantly we see evidence to the contrary. I would not call it lucky that we have some of the highest interest rates in the world or that we pay more in bank fees and other essential services than many Western Countries. Added to this is the fact that Australia’s average age is increasing and baby boomers who represent more than 30% of our population are now retiring. The facts are that 75% of all retirees are still reliant on some form of government pension, with 50% of these people relying on a full pension at around $14,000. Given this the pension provides more of an existence than any lifestyle. I’m not sure I would not want to call anyone who had to survive on a pension that ‘lucky.’
Let’s face it, the baby boomers have been the back bone of our country for more than two decades, and over the last 5 years we have seen them start to retire. However the majority are still to come and I would suggest, that based on the above figures, many will not be that lucky when they do.
Since the inception of compulsory super, there have literally been thousands of changes to the legislation, and the baby boomers are lucky to be the first generation retiring under it. Putting up with a superannuation system where the goal posts continually change would be very difficult, and the recent budget has only added to the difficulty. Let me explain…
Sure, many baby boomers have not planed their retirement as well as they should, but in their defence they were told that between superannuation and the pension they would be ok. But we now know this is not correct. In my opinion the recent budget did little to help those in retirement or nearing retirement.
The increase in the superannuation guarantee does nothing to help retirees, and those nearing retirement will get little benefit as it does not come into effect for three years – and even then it will be a staggered implementation. The retaining of the $50,000 concessional cap does not effect retirees and again I believe will do little for those about to retire, especially since it will only apply to those with super of less than $500,000. Anyone retiring on this amount or less in my opinion is definitely not rich and therefore I believe this should be set at $1 million.
Lastly, raising the compulsory Superannuation Guarantee eligibility age from 70 to 75 is basically an admission by government that they got it wrong over the last 30 years. I am sure when I am 70, that I will not want to work another 5 years so that I can put more into superannuation, especially since the life expectancy of a 70 year old male is roughly 14 years. I am sure many will agree that at 70 they would rather be retired and spending their hard earned money and not saving it. The lucky country? Surely if retirees were lucky then they would all be retiring early and with lots of money.
One of the reasons for the current list of changes is that the government is looking for ways to pay for the record level of sovereign debt which they created, and our entire super savings are just sitting there waiting for them to access.
Will the Government down the track slap a further tax on superannuation contributions and in doing so make it harder for people to reach their retirement goals? Maybe they will if we are really lucky. The other issue as already mentioned is the significant number of Australians heading to retirement. This presents a large future liability for the government. Add these together and you create mass uncertainty for those who plan to rely on their super for retirement. If these changes continue, it may get to the point that by the time you can afford to retire you may not have enough good years left to actually enjoy your money?
It is no wonder I am seeing more and more retirees, plus retirees looking to retire coming to me to teach them how to invest and manage portfolios outside of superannuation, and I can’t blame them for wanting to take control. After all who knows what changes are in store for our superannuation in the next 5, 10 or 20 years? You never know; we could get lucky and the changes will be for the positive.
But I won’t hold my breath.
Dale Gillham – is the Chief Investment Analyst and a Director of Wealth Within and author of “How To Beat The Managed Funds By 20%”. He can also be seen on Sky Televisions Business Channel’s program “Your Money Your call” at 8.00pm on the 8th June and monthly on every second Tuesday at the same time. Click here is you wish to access the Wealth Within Website.