THE SAVINGS NIGHTMARE

Imagine around twenty years from now you decide that it’s time to retire, to do all those things that you have not been able to do because you have been working all your life bringing up the children and paying off a mortgage. The vast majority quickly discover that they will not have enough money to maintain their current lifestyle and many will not even be able to afford the basics without some form of Government support. On current projections, in Australia within a short period of time around 80% of retirees or around 20% of the projected population will be living on under $12,000 per year.

In New Zealand where there is no compulsory superannuation and coupled with lower incomes the situation is even more bleak. Nearly all Western countries are facing similar problems. In the United States people have fewer savings than Australians and their debt ratios are far higher. The Baby Boomers may well cripple some countries.

If the current predictions are true, then what effect will this have on Australia and New Zealand? Here we come to the second problem; thirty years ago the average family was having three children. Today only two out of four couples marry and only two out of four have children. We are also having children at a much later age today where the average first time mums are 30 compared to 21 thirty years ago. With many professional women starting families in their late thirties. What this means, is that we are not replacing our current population.

If we follow the facts through, it will indicate that we will not have enough people in the workforce to fill all the jobs. This means that there will be less tax payers than there are today. So with the number of people aged over 65 doubling in the next twenty years, where are the funds coming from to support them?
Although a GST will help, if people are spending less then there is less money in circulation and less being collected in taxes.

Rather than retire, many Australians and New Zealanders will have to work far longer than they do at present. That is, if people wish to maintain something close to the lifestyle they have today.
So what can we do about these issues? Firstly and most importantly we must save more. We cannot keep spending more than we earn. That is the quickest way to go broke. The 9 percent superannuation is not enough. If you are hoping to live at least 20 years in retirement on an income of around $50,000 per year you will need around one million dollars in either invested funds or property. That’s cleared funds without debt. There is no other option. The government in Australia could do far more to encourage long term savings. In New Zealand when it comes to property investment they have no capital gains tax, no stamp duty, and the rate of depreciation is double compared to Australia. This encourages New Zealanders to save. In the United States all mortgages are tax deductible, in other words you can negatively gear your own home. The taxes in Australia are simply too high. The Australian government must make significant changes to our tax system to encourage us to save. If they fail to do this most of us will face a bleak future.