The latest statistics from the Australian Bureau of Statistics confirm that only 4% of Australians aged 65 years or older are self-funded retirees. In other words, only 4% of Australian retirees leave the workforce with enough money saved or invested to live the comfortable retirement that they choose, without having to rely on a tax-payer funded pension.
This is bad news for 96% of us. Here’s why…
1. It’s not enough money
Let’s have a look at what you’ll get on the pension:
- Maximum Basic Rate for a Single Person: $782.20 per fortnight
- Maximum Basic Rate for a Couple: $1,179.20 per fortnight
“Yes but…” I hear people say, “I’ll be old, I won’t have a mortgage or children to support, and I won’t need much money to live on”.
Fair enough, but first talk to an elderly person on the pension and ask them what it is like trying to live and stay healthy in today’s society on $391 per week. How many times have you seen a pensioner on the evening news exclaiming how truly wonderful it is trying to pay for their rent, food, power and medical expenses on $391 per week? The answer is: never. Most pensioners will tell you they can barely survive.
You may be able to survive on the pension, but it’s a death sentence to many of the plans you likely have for a thriving retirement.
2. It’s going to get worse
Australia has an ageing population that is only going to increase pressure on our welfare system in the future. This means that even the current pension levels are unsustainable.
Excerpt from “The Age Pension in Australia: Past, Present & Future” by Andrew Barnett:
The cost of running the age pension for the government was $34.70b in financial year 2011/2012 up from $16.67b in 2001/2002. This represents a more than doubling over 10 years, and a compounded annual increase of 7.6% per year. Much of that increase is due to more people reaching the eligibility age.
With projected lifespans continuing to increase, the government plans to increase the eligibility age to 70 years of age by 2035.
Even with this increase in the eligibility age and with the coming influx of retirees with significant superannuation balances, the Australian government forecasts that the annual cost of running the age pension will increase to $85.4b by 2035/2036.
As a result of the projected increase in costs, there have been a significant number of calls for further reforms to the current system.
Prior to releasing the 2014 federal budget, the treasurer, Joe Hockey, had called the pension system “unsustainable” and likened not reforming the system to “inter-generational theft”.
The main changes in the 2014 federal budget relating to the age pension were:
- Increasing the eligibility age to 70 years of age by 2035 (it was previously set to increase to 67 years of age by 2023)
- Reducing the future rate of growth in the pension amount
- Tightening the income test to make it more difficult to receive the full age pension.
By the time you reach retirement age, who knows how much you’ll get, and depending on legislation changes you may not end up being eligible for the pension at all!
What can you do to avoid it?
Start with the basics…
1) Find a way to allocate a portion of your income towards building your wealth. Today.
Yes often that means the boring stuff like saving and being sensible with your spending, but it’s really not about “saving harder” – there are a series of ways to do this without cutting back on your lifestyle.
Our starter guide, Financial Independence in an Hour has helped the penny drop for a bunch of people. Get it here for free.
2) Invest your money so that your money earns more money for you every year. Saving alone will add up slowly, but the returns from your investments are what will multiply your money.
In my experience running more than 2,000 investment education workshops for individual clients over the last 11 years, people put off taking the first steps towards making their first investment because they don’t have the basic knowledge to get them started.
Our article on Negative Gearing is our most popular and you can read it here: Negative Gearing – A Beginner’s Guide.
Once you gain a familiarity with the basic principles of investing your money, you’ll see how average salary-earning couples build their wealth, and it automatically becomes a far less daunting step.
Next step: Don’t put your retirement at the mercy of an allowance that is inadequate now and that will likely get worse over time. Get our free starter guide (Financial Independence in an Hour) and you’ll know more in an hour about the concrete steps to financial independence than 95% of the population.
We do 1-on-1 Financial Independence Workshops for $295 with a guarantee that we’ll make you $5,000 in saved interest and tax on the day. 100% success rate in 2015. Full details and results here…
Andrew Clough | Ph: (07) 3510 2122 or contact me via email here
Main Street Group | Level 1 Highpoint / 240 Waterworks Road, Ashgrove QLD 4060