Will the young save for when they’re 80?

The Association of Superannuation Funds of Australia (ASFA) invited from Prime Minister Paul Keating to give an address at its national conference. His topic was: “The future of super: Does retirement income public policy and the design of the super system need to move in a new direction?”

Keating focused on the longevity risk and rightly pointed out that there are now two phases to retirement being 60-80 and 80 onwards. While the exact ages are flexible, there is without a doubt a distinctive change in the focus of people entering that second stage where they are focused on healthcare and aged care assistance.

My question is should you live life to the full in the early stage and blow your retirement funds enjoying life’s adventures with a view to falling back on a safety net in the latter stage relying on a scheme managed by the government but funded by an extra 3% of your income through your lifetime as Mr Keating recommends.

It would take a massive change in current thinking of younger generations who are ”in the now” . Would they really buy a scheme that focuses on their needs 50-60 years in the future? Should they be given the choice or as a nation who understand now the huge costs of aged care and medical costs resulting from longer life spans, should it be a compulsory scheme?

Glenn Rees, the CEO of Alzheimer’s Australia said in an ABC interview recently that “By 2050 there’ll be over 900,000 people with dementia. By the middle of this century the number of people with dementia will triple to over 900,000. That’s an increase from 280,000 today.” It was also stated that Alzheimer Australia has predicted I think that Australia will need 500 to 1000 new nursing home beds each month for the next 40 years.

I see the concerns of older clients about funding later years and leaving it to market forces to determine if there funds will last that long is just too big an ask. I believe like Keating that a scheme similar to the Future Fund building the infrastructure needed to support that sector servicing those over 80 is required, with or without the support of the private sector.

This needs to be addressed separately to funding your own retirement choices as most people will ignore the very long term needs until it is too late or too costly to fund them so despite my misgivings of big government intervention let’s not make future generations have to carry the tax burden of looking after us our final years.

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  1. Diogenes the CynicMEMBER

    With all the changes to the super system why would young people save extra $ at all? I have put no money into my super in the last five years and will not in any likelihood (barring a massive lotto type windfall) do so in the future. The government is constantly changing the rules, incentives and based on this blog will need to raise taxes on super and other income. Your article implies supreme faith in the system many years from now (if you are 20). The recent five years of government does not inspire such confidence. Better to save money outside any government mandated systems so you can use that money earlier or latter depending upon your needs.

    • Absolutely, the sovereign risk of the Govt dipping into the cookie jar far outweighs the tax advantages in my view. It’s enough to scare anyone away from putting anything into super more than is compulsory.

      And if I can manage a double digit TIR (before tax) over 12 months in my private portfolio, why the hell should I put it into Super where the fund managers can barely beat inflation. Granted I can (and do) change my super allocation as the macroeconomic situation indicates, but they still take a bit of a slice of the top every time, and I can’t be sure that I am really allocating to what I want.

      • is it possible for the government to increase compulsory super to 50% and then increase the preservation age to be something that’s impossible like 160 yrs old? (obviously this is just an exaggerated example to illustrate the point) but is there anything stopping them from slowly doing this over time?

  2. 3% extra may be needed just to recover the lower growth profile of the economies of the world and the extra inflation eroding the purchasing power of savings…

    do I hear 6% needed?

  3. After the resource and water wars of the mid century and heat impacts of global warming, the population might not be so big at such late ages anyway.

    And the cause of Alzheimers and associated dementias might be isolated and they might be preventable.

    And then there is always euthanasia while still compis becoming encouraged rather than illegal, and compulsory when not compis, thereby avoiding much of the health and care costs of the last year of life.

    • My retirement plan for that age has two distinct phases.

      1) Take steroids and other performance enhancers until they no longer work

      2) Take up Heroin

      That’s it. That’s the plan. At that point, my logic is there’s nothing left to lose. Of course, I’m a long way off that point and there are plenty of things that could occur on the way to change my mind/ability to follow through.

  4. I also do not contribute anything extra above the mandatory minimum to super. Given the expected increases to retirement age I expect that I would not get access to these funds until 2050 at the earliest. But by 2050 I strongly suspect that the funds in that account won’t actually be worth anything in anycase – in the sense that they will have no material impact on my life or well-being.

    Part of the reason relates to the issue I take with all – utterly absurd and useless – government projections beyond 10 years (especially 40) that fail to take into account expected progress and improvements across technology.

    Given the digitisation of DNA and the massive bounty we will reap from fully mature biotechnology and synthetic biology capabilities over the next two decades, it is quite reasonable to expect that by 2050 there will be ZERO people suffering from dementia, not 900,000.

  5. If old people who retire want to blow their savings, no problem, but don’t expect us to pick up the tab, when that time comes it’s time for you to roll over.

    God dam old people are shifting debt to young people, such as through buying properties and renting them out creating even more shortage in the market.

    • So will you just join them when you get older and pass on costs to the next generation or do you think you should plan to fund your needs from an early age.

  6. How about abolishing superannuation entirely? Radical I know but forcing people to put 10%+ of their income away for retirement makes it difficult for people to save for medium term goals (e.g. buying a car, property, holiday etc.).

    The other issue is having a central bank that will always favour borrowers than savers. If we allowed the market to set the interest rate then people would actually save on their own.

    I’m pretty young myself and I’d rather make my investments outside of super because I have more control over what I can buy and I can sell my investments whenever to fund whatever before I retire.

    • It’s not a matter of all or nothing. As your marginal tax rate rises it is hard to ignore concessional taxed structures as part of a strategy but you are right to try keep some funds safe outside from Government manipulation and the legislation risk.

  7. Best to stop having children and just save money to fund our retirement. I suggest a mattress is a good savings vehicle.

    • That, I can say from personal experience, is the best way to live. No kids, rent, that is rent for less than $3000 bucks per month Claw (The), and save.

      In case you feel the strongest of biological urges to populate this world, consider what Buddha said about having children. When asked whether one should have kids, Buddha the devine spoke thus, “you will regret having children, you’ll regret not having them”. Choose your regret!

  8. Heres a thought. How about a HECS-like scheme for super. Whereby, once you have submitted your first tax return, you become eligible for a government ‘interest-free’ loan equal to ‘Retirement Age’ – ‘Current Age’ * ‘Current Average Wage’ * super contrib (possibly 12%). This would place a large sum in your super immediately, which you pay back with what would have been your super contribution. You can pay extra back at any time. If the loan is payed off early, you become eligible to draw on that instead of ‘Newstart’ if under pension age.
    I would imagine quite a lot of people would end up paying it off early, as wages increase through their working life…

    The idea is that it gives a large amount at the start, taking advantage of 40/50+ years of compounding to ensure you never need the pension. YES – taxpayer would have to wear the costs if some number never managed to pay back their loan. But it would make the amount of money earned far greater, making it actually possibly that a high percentage would not need government pension once retired.

    • I have actually thought about something like this, except it starts at birth and with a credit. Each individual has an economic worth and it gets credited at birth, allowed to compound and then gets debited at any point when the individual becomes a cost to society, education costs or social security it gets credited when the individual does thing that benefit the society ie taxpayer, active service in the defense force or even being member of a service club.

    • Yeah, great idea.

      But, pray tell, where would the “‘Retirement Age’ – ‘Current Age’ * ‘Current Average Wage’ * super contrib (possibly 12%)” worth of money come from, other than some huge expansion of credit or straight-out printing?

      • Ironically enough – mandated purchases of government bonds by super funds…. its a way to get back at those greedy Boomers…. 🙂 (that was a joke…)

        • so the young ‘uns will be in hock to the boomers (via some mechanism involving superfunds and government).

          Might as well save on the transition costs and keep the current well oiled system of having the young ‘uns in hock to the boomers by the mechanism of housing.