Is the full aged pension going to be As Good As it Gets?
Research shows that the aged pension is all we have to look forward to, unless we act now.
Are you planning to live on the age pension when you retire? Or would you like to do a little better than that?
We came across some research recently that demonstrates that it is likely that most people aged in their 30s today will have nothing more than the aged pension to live on when they reach their 70s. It is sobering stuff. You can read the article yourself here:
The article contains a lot of assumptions and a lot of analyses. But the simple ‘take out’ is this: based on what they are doing now, most people will have nothing other than the aged pension to live on once they reach their 70s. There are two main reasons for this.
The first is that modern life means people do most of their milestone things later in life: they become qualified later, start full time work later, find a partner later, have kids later, buy homes later, etc. This means that there is simply less time to earn enough to meet the largest financial expenses (buying a home and raising kids). As a result, buying a home and raising kids take up more of a person’s income than has been the case in previous generations. This is made especially the case because housing is much more expensive these days.
The second is that most people finish work in their early 60s. For today’s twenty and thirty somethings, the age pension will not commence until they reach the age of 67. This means that the first few years of retirement will be self-funded, which seriously depletes the wealth available for the rest of the retirement. Remember, the average 61 year old has another 25 years or so to live. Their wealth has to last well after they finish working. Spending a big chunk in the first six years of retirement is not a great way to go.
The problem for many people is that they only do two things to create wealth. Those two things are good to do, but they are not enough. The first thing most people do is buy a home. A home gives you somewhere to live, but the wealth stored in a home does not really contribute anything else to your lifestyle.
The second thing most people do is rely solely on their employer to make super contributions on their behalf. Almost all working Australians receive 9.5% of their wages or salary as a compulsory superannuation contribution. This is again good – but again not good enough: this level of contribution will give you a good few years straight after you retire, but it won’t stretch across 25 years in any meaningful way.
You need to do a third, fourth or even fifth thing to create wealth if you want your retirement to be a comfortable one. The list of things you might do is long: you could aim to buy one or more investment properties; you could borrow to invest in a simple index-tracking ETF, using the benefits of dollar cost averaging to invest a small amount regularly; or you could simply sacrifice a little bit more income into superannuation each month – maybe financing it with an extra couple of hours’ overtime if possible. Interestingly, if you do this early in your life, and then let the extra super compound over 20 or 30 years, you will find that the little bit that you sacrifice will make an outsized contribution to your wellbeing.
One of the unexpected things about wealth creation is that there is no one thing that everyone has to do. There are plenty of ways to create wealth, and anyone who tells you that there is only one way to go is trying to sell you that way. What matters is that you do at least one intelligent thing. And that you avoid the lure of a quick buck and instead prefer lower-risk, proven strategies that understand that time is the best asset that you have.
So, why not come in to see us to discuss how we can help you ensure that the age pension is not ‘as good as it gets’ for you?
