Sunday, January 04, 2004

Retirement incomes: if you don’t fancy living on the pension, then have I got a deal for you

The stats here seem quite contradictory. On one hand, the oldest boomers (b. 1946 – 1951 (?)) currently have quite modest means as they commence, or count down towards retirement – $56,000 in superannuation, additional private savings of $58,000 and average equity in the family home of $126,000. On the other hand, when the goalposts are shifted to all those born pre-1949, we get this Aladdin's Cave:

The over-55s are just 20 per cent of the population but account for 25 per cent of all disposable income, own around 40 per cent of the nation's assets, and more than half of its financial assets. (same URL)

That the average oldest boomer does not have enough superannuation to wholly, or even meaningfully part-privately fund their retirement was always going to be the case. Much more alarming is the surprisingly small ($126,000) average equity in the family home, given that the oldest boomers have had virtually the same dream run on the property accumulation ladder as the 1930-1945 born generation.

Equity withdrawing – using capital gains to fund consumption – is the likely explanation for this discrepancy. If so, and if property prices do fall substantially, many boomers are going to be facing nasty debt hangovers, having forgotten or ignored the old-fashioned concept of using capital to produce income.

The lack of sympathy for such cases, at least from my generation, will be deafening, I predict. Being born in 1964, I’ve somehow become an honorary boomer here, with the stats covering those born 1946-1965. But my cohort's financial form does ring roughly true with these figures:

The poorest 25 per cent [of those born 1946-1965] have only $21,000 in superannuation and an additional $3000 in savings. (same URL)

In my own case, the actual figures here are “nil” and “nil”, but you get the picture. The boomers’ retirement income crisis is all relative – if they’re all mostly going to end up on the pension, then the taxpayers of Australia ain’t see nothing yet, compared to when my generation hits 65, and still with a big fat “nil” in all categories (including family-home equity).

As usual though, short-term-ism frames and clouds the debate. An about-to-turn-60 female (so eligible for the age pension at 63, in Feb 2007) – but who is still keen to work – is vox-popped about age discrimination in the workplace, rah rah rah. Brenda Scully, I feel for you, but even as your quoted words suggest, it is downhill for almost everyone over 30 these days.

The difference between me and the Brendas of this world is this. She (I’m sure) sees the standard of living of a home-owning pension-dependant retiree (even with a trickle of extra private income) as unbearably frugal. For me, it’s something to aspire to, a zone of middle-class comfort, below which there are many much worse off.*

So assuming that Brenda’s job-hunting luck doesn’t change in the next three years, it seems that the younger generations are soon to be faced with an interesting spectacle, of Brenda and her ilk crying out about being expected to live on “only” the pension.

Believe me if this happens, Brenda, I’ll be among the first to sit up straight and take action. Here, the logical course will be to immediately cut-off the retiree’s dignity-offending source of taxpayer funds, and to replace it with a compulsory private annuity (or “reverse mortgage”), drawn against the value of their house (assuming they own one).

“And what will happen next, when and if this annuity runs out?” I hear Brenda asking. Honestly, I don’t exactly know. What I do know, however, is that millions of GenXers, who never got a real chance at a career or home ownership, will be taking a very active interest in the answer. However indigent an eighty-something Brenda may be (should my private annuity plan have been taken up, and Brenda have exhausted her home's equity), I can promise her that, in twenty years’ time, she won’t be any poorer than the mass of GenX as we go into retirement.

* The current fortnightly base rate for the single dole (Newstart) is $385.00. The current base rate for the full old age single pension (including pharmaceutical allowance and telephone allowance is 20% higher, at $461.60 fortnightly.

Update 12 January 2004

The CIS's Peter Saunders drops this clanger today:

The minimum welfare income for a single person is $12,500.

Err, that would be the minimum pensioner income, Peter. On the dole, it's an even, exact $10k.

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