Some scary statistics are starting to emerge about Australia's financial future. Are you prepared for what's around the corner?
Blogger: Kevin Lee, founder, Smart Property Adviser
The Intergenerational Report (IR) launched in March by reasurer Joe Hockey and the much-maligned 'Dr Karl' actually contained some important – but terrifying – research and projections about the demographic changes headed your way.
In fact, some of those changes are already taking place, so read on at your own peril ...
The first bit of research that grabbed my attention was in the executive summary: “By 2054 we can expect to see around 40,000 Australians aged over 100.”
Talk about hitting home: if I make it to 2054, I'll be one of them!
Before we go any further let's do some maths: if our retirement age remained at 65, by 2055 we would somehow have had to fund 40,000 very special Australians who stopped contributing to our tax base and compulsory superannuation system some 35 years earlier.
OK, that's 40,000 older Aussies who will either self-fund themselves for about 35 years or rely on either a full or part age pension? Mmm, I see a BIG problem here.
While we all hope these centenarians will self-fund their retirement, keep in mind that in 2013 only 4 per cent of Australians over 65 were self-funded retirees! Just 4 per cent. So what's going to change?
How's your vision of retirement looking now? Feeling a little uneasy? Good ... listen up!
About 200,000 Australians turned 65 in 2011 and, according to researchers McCrindle, between 2012 and 2020 another 5.4 million will join them.
The IR states “in 2055 the projection is that 7.0 million Australians will be aged 65-84. Compared with just 3.1 million in 2015...”
But wait, there's more – by 2055, the over-85 age group “is projected to be around two million persons, or 5 per cent of the population”.
Let's add this up:
• seven million aged 65-84, plus
• two million Australians aged over 85
So we're staring down the barrel of 9 million Australians aged over 65 in 2055. Almost 24 per cent of our total population!!!
Are you already 55 plus? Michael Matusik (one of Australia's leading property analysts) stated recently that “about 5.8 million people are aged over 55 years in Australia today (2015)". This demographic is projected to more than double (to 12.8 million) within the next 40 years ... representing a projected growth rate of 170,000 people per annum each and every year between now and 2055 compared with today."
Have a good think about all these statistics if you're in this age group ... by the time you're ready to retire, the "age pension" won't be what you think.
In fact, I think the age pension will be non-existent as early as 2020, because our tax base will struggle sustain it.
Need proof? Treasurer Hockey's 2015 Budget handed down recently proves that our federal government has finally realised our ageing population is going to be very, very costly.
In fact, the government has announced "it will adjust the thresholds for assets tests on the pension, meaning 172,000 pensioners at the lower end of the pension will be better off, while 81,000 pensioners who currently claim the part pension will no longer be eligible." (ABC Australia, 13 May 2015).
Plus singles over the age of 65 with assets greater than $775,000 will no longer be eligible to claim the part pension – with the asset limit now just $550,000.
To make matters worse - Generations X and Y (and soon Gen Z) will not pay enough income or indirect tax to support the millions of Baby Boomers who will reach 65 and decide to leave the 'Rat Race' and retire.
In fact, in the main, our Gen X (the next in line) kids don't have the asset base or income to be able to replace the Boomers who are about to exit the system in record numbers.
Retirees return to the workforce
The need for our older generations to remain in the workforce is driven by the fact that most of them cannot afford to retire; they simply can't afford to live for another 20, 30 or 40 years.
If the Treasurer's 2015 Budget is any indication, I'm sure we'll see a lot more Boomers rejoining the workforce in the not-to-distant future. Bunnings and McDonalds anyone?
The IR states that "there will be fewer people of traditional working age compared with the very young and the elderly".
This trend is already frighteningly visible!
The number of Australians of work age (those between 15-64) for each person over 65, has fallen from 7.3 people in 1975 to just 4.5 people today. By 2055, this is projected to halve again to just 2.7 people.
Make no mistake: that's 2.7 people in high school, university or the workforce for every person aged over 65 years. Scary or what? Where's the tax going to come for to pay the pension?
It's already happening; walk into any major retail outlet and you'll notice a growing number of staff over 50 years of age. Back when I was a store manager at Big W (many many years ago) my staff mostly consisted of young, part-time students and early “twentysomethings”.
It's quite the opposite today and the scales will continue to tip, the older Australia gets.
What about you? Despite these very accurate statistics and projections, most Australians are not doing enough to future-proof their financial futures. Ask yourself these questions:
• Do you want to make it to 65 years of age and not be able to self-fund your retirement?
• Worse ... do you want to reach your 65th birthday with the realisation that you can't afford to retire? Or that you have to return to the workforce?
• More importantly: what are you doing now to ensure your long-term financial security?
Einstein's jocular definition of insanity is “doing the same thing over and over again and expecting a different result”.
Sadly, I think too many Australians fit this definition ....
Research sources used for article statistics:
Michael Matusik Dyers vs Buyers
2015 Intergenerational Report
2015 Budget: http://www.radioaustralia.net.au/international/2015-05-12/budget-2015-winners-and-losers/1446696
About the Blogger
Kevin Lee of Smart Property Adviser is regarded by many as Australia's most trusted property investment adviser. Since 1999, Kevin's been the go-to-guy for people when they need honest finance and property investment advice and guidance.