Asset deflation likely to delay retirement plans

By Leith van Onselen

New research from Roy Morgan shows that the number of Australians who intend to retire in the next 12 months is estimated at 426,000, a 30% increase on the level seen in 2008 when it was 328,000. Meanwhile, the average gross wealth (total assets excluding owner-occupied homes) of intending retirees is $331,000, up from $237,000 since 2008. However, the property and share market slump is likely to delay retirement plans:

Negative factors like the decline in the current share market and house prices currently impacting household wealth, combined with uncertainty around the future of franking credit refunds and negative gearing, have the potential to delay retirement decisions in order for potential retirees to build up sufficient wealth…

Currently the average gross wealth (total assets excluding owner-occupied homes) of intending retirees is $331k, up from $237k or 40% since 2008…

Superannuation, through its tax concessions and compulsory nature, has been the main vehicle for trying to achieve this and is having some success but is still falling well short of funding the retirement of those currently intending to retire. In the near term this shortfall is likely to continue as stock markets are facing considerable downward pressure and as a result will reduce the growth of superannuation funds.

Up to now, superannuation has been playing an increasing role in retirement funding and currently represents 69% of the gross wealth of intending retirees, up from 53% in 2008.

Although the average debt level for this group is currently only $26k, it does reduce their average net wealth to $305k, which is generally inadequate for self-funded retirement.

The overall conclusion from this is that intending retirees will be relying on government benefits for some time yet, given the fact that the Association of Superannuation Funds of Australia (ASFA) estimates that an individual would need $545k and a couple $640k for a ‘comfortable lifestyle’.

Given the very low interest rate at the moment and the level of economic uncertainty, the amount required to fund retirement is likely to rise well above these levels. This is not only likely to negatively impact the proportion that become ‘self-funded’ retirees but has the potential to delay retirement decisions…

Full report here.

Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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Comments

    • I love how people sell asset allocation as a way of minimizing risk bllsht bllsht. Yet during gfc every asset class fell,…except cash. AA is largely a mkting tool

      • AA is still far superior than that BS ‘diversification’. Cash is an asset as are bonds, which did extremely nicely during the GFC.

        The trick is to rotate between the asset classes at the right time – not easy to do. Diversification is just a preset formula for monkeys and is largely useless as a risk management tool although the fund managers, handbook will say otherwise.

  1. So youth are getting reamed twice over by older generations. First, by inflating dwelling prices either out of reach or forcing them into debt servitude, then by stymying job and promotion opportunities by staying in the workforce. Australia, you’re standing in it.

    • Either they don’t retire, or they do. And if they do, either they fund it themselves, or they live off the taxpayer. The only other alternative may be some sort of compulsory euthanasia scheme at a certain age – perhaps in the form of a lottery?

      • I get the dilemma Dan. I first read that as compulsory retirement but yours is much more interesting. Are you sure that is the only other alternative? I can think of a few.

      • Logan’s run for say 75+ (mixed with a bit of Soylent green to feed the 3rd world) – most of the world’s problems solved.

      • You don’t think comfortable retirement would be defined by some domestic travel and very occasional international travel? I certainly do.

        I’ll be terribly disappointed if I can’t knock out an Haute Route, Etape/Marmotte double and a Maratona in my retirement.

      • Hadron, it’s only a recent thing because we started living too damned long.

        My grandfather, part of the greatest gen that fought and died for the West, was happy with 5 years of retirement to tend his gardens before he passed.

        Western boomers have had a higher standard of living than any human generation, ever and have done so on the backs of their parents, without earning it themselves. They deserve to go without in retirement just so some balance is achieved.

      • Who would feel uncomfortable if they couldn’t take some international holidays?
        Vacations (and the regular new cars included in the ‘comfortable’ budget) are clearly substantially more than required to avoid feeling ‘uncomfortable’.
        By all means sacrifice your income now if you want to enjoy benefits later, but describing it as necessary to avoid discomfort is just silly.

  2. You might think that Asset Deflation is a scary concept, but I’d say an even scarier concept is that Assets retain their value but wages don’t.
    IMHO Wage Deflation with Asset Inflation is still the most likely outcome

  3. thomickersMEMBER

    I like the balance sheet I saw of a person aged 60 last year with $5 million in Melbourne properties and $4 million in lending. $1 million in personal equity probably looks more like $500,000 equity now. Hope that $400,000 super fund does its magic.

    • I’ve got a few friends and acquaintances doing this. I think it might be a bit more common than generally thought.
      They are also convinced the royal commission is completely wrong, and responsible for falling house prices, and that the nice banks should be allowed to do what they want,even if it is currently illegal( change the law one person suggested).
      It’s La-la land stuff.

      • Ah yes – very much the same kind of thinking of what I’m getting here: cardinal Pell may not be guilty at all, really, can’t be… can he? I mean… who are those people anyway..

      • Now,lknow from talking to patients over the years that Pell deserves everything and more that he might get.

  4. This is why NGing should not be grandfathered. New builds only.

    For existing IPs if the last purchase date is newer than the build date by greater than say 6 months, remove the negative gearing.

      • It will achieve getting boomers out of the workplace and promote selling up the detached housing they are holding – if they can no longer NG their IPs, they have less reason to remain at work and will be less able to hold them. This is win win for younger generations as it will free up employment positions and put houses on the market, adding to the current decline in prices.

        Chances are the majority IPs that were purchased new are flats and the like, which can be left as rental stock. More of the detached IPs were probably not purchased new and this would be better added to a crashing market as sale stock, giving young families more opportunity to find something they can afford.

      • Re Ummester
        Boomers all retire? Who would drive the busses? Would you want their house in the suburban boondocks? A dead meme, the problems lie elsewhere.

  5. Jumping jack flash

    I can’t see how asset deflation will, or should, delay their retirement unless of course they are completely overtaken by greed, in which case they will never be able to retire.

    How much is enough? If you consider the question, it has no answer because there is no end. The more that is stockpiled, the more that is needed.
    It’s the nature of things.

    They should all just retire. At once. Like a bandaid. Whatever they have managed to stockpile should be enough. If it isn’t enough, then I’m sure everything will just deflate to match whatever they have.

    Those about to retire should just relax, be happy, be satisfied with what they have, retire instantly, and enjoy the rest of their lives.
    Desire is suffering, after all, so retire now, stop desiring, stop accumulating, and stop suffering.

    • Your advice is probably good for the top 20%, except for those who really like their jobs and are performing well in them. The rest will be on a full or part pension, however, so you can switch from blaming them for staying in the work force to blaming them for being a burden on the taxpayers.

      • Jumping jack flash

        If they like their jobs and are good at them, then no need to retire!

        From what I could glean from the article it was concerned with those who were delaying retirement in order to accumulate more to reach that mirage; that magical state of “having enough”.
        The problem of waiting until they “have enough” is that it will never be reached because as more is accumulated, more is required to “have enough”.

        My advice to them was to just do it. Just retire now. If they don’t “have enough” then I’m sure that as that cohort retires, the deflationary effect of the action of retiring will ensure that they suddenly “have enough”.

    • Music to the ears. Thanks for the tip off.
      We got lost in that triangle between Kings way,St Kilda Rd, and the Arts centre in Melbourne on Saturday night.
      Absolutely amazing amount of tower apartment building- they are building a small country in there.
      Everything had Metricon all over it- they will be looking for thousands and thousands of buyers,let alone the financing to get it finished.
      Pretty sure it’s a privately owned company,so no shorting.
      But if you supplied anything to it you’d want to be prepaid,and no deferred wage payments. It looks ugly.