DIY Super For Dummies. Power Trish

standard of living is one of the highest in the world, with one of the world’s most advanced health systems, using the latest, expensive technology. Because older people use the healthcare system more than any other age group, and the increasing number of older Australians is putting pressure on Age Pension expenditure, the decision makers in Canberra have peered into the country’s cookie jar and realised that the Anzac biscuits are running out. Fewer people are ‘making the biscuits’ as the numbers of workers entering retirement increases. The federal government is likely to ration the bikkies or break them up to ensure everyone gets their fair share. But workers have grown up expecting that they’re going to get a full serve.

      What’s the solution? BYO – bake your own! Superannuation is Australia’s preferred recipe when it comes to ensuring that both you and I, and everyone else, save for retirement.

      Facing Four Facts about Your Super Future

      The world has changed dramatically since the Australian government first introduced the Age Pension in 1909. In those days, a man’s life expectancy was a mere 55 years, and women were expected to live to the age of 59. The expense of supporting the country’s small number of older citizens was very do-able. Australia had 16 workers for every retired person, which spread the load very nicely. The government budgeted for a small financial commitment because the numbers of retirement-age and older persons were small and, at that time, few Australians lived beyond a pensionable age.

      Aussies are now living longer and the percentage of Australians working is shrinking. Today, around half of federal government spending is directed towards social security payments, health and aged care – with spending on health and aged care expected to escalate during the next 40 or so years.

      Government funds are limited and the financial demands of an ageing population is only going to increase. So you shouldn’t expect the government to let you join the Age Pension retirement party when you finish your working life without passing a few wealth tests.

      Living longer – ageing in comfort

      Have you heard the Beatles song, ‘When I’m 64 …’? The song from the 1960s is about a man asking a woman whether she’ll still love him when he’s old and crooked at the grand old age of 64. Nowadays, you need to add another 10 or 15 years to the scenario to make it realistic. Today, a healthy man in his sixties can expect his life to still pack a bit of a punch, just as former widower Paul McCartney has proven by remarrying (and divorcing) and remarrying in his sixties. Imagine …

      Australia is certainly the lucky country when it comes to life expectancies, and has one of the highest life expectancy rates in the world. Life expectancy means how many years you’re expected to live. Statisticians can measure life expectancy at birth or during a person’s life.

      If you’re a woman and retire today at the age of 65, you can expect to live, on average, until you’re 87 (another 22 years). If you’re a man and retire today at the age of 65, you can expect to live on average until you’re 83.5 years (18.5 more years).

      Life expectancy figures show that you may experience retirement for nearly as long as you were working, particularly if you stop work well before the age of 65. Are you ready to age in comfort? Have you planned for your long life in retirement? I explain your average life expectancy in more detail in Chapter 3 where I discuss how much super you may need in retirement.

      

An important exception to the longevity of Australians is the contrasting life expectancies for Indigenous Australians: It’s up to 11 years shorter than non-Indigenous Australians, although this rate is improving over time. If you’re an Aboriginal or Torres Strait Islander, please note that life expectancies are averages and you may well live as long as, or even longer than, non-Indigenous Australians.

      Straining the government Age Pension

      I feel sorry for the federal government – seriously. The main source of funding for the government is money that comes from the pockets of Australians in taxes, and it is trying to solve the biggest funding dilemma that the country has ever faced. In 35 years’ time the number of Australians of working age compared to Australians of retirement age will be nearly half of what it is today. In 2010, five workers supported each Australian aged 65 or over, and by 2050, only 2.7 working Australians are going to be supporting each retired person, although the federal government increasing the Age Pension age to 70 years by 2035 (subject to legislation, see Chapter 20) will help offset this worker/retiree imbalance.

      Understandably, the Australian government is fretting that there isn’t going to be enough money in the kitty to pay an Age Pension to all the baby boomers stampeding into retirement and supposedly spending all their money along the way. The really scary prospect for the country’s decision makers is that multiple generations could be vying for the right to claim the Age Pension. Imagine – assuming the Age Pension still exists in its current form in the future – you may be able to claim the Age Pension at the same time as your parents or children (see the related sidebar ‘Living into your eighties and nineties’).

      Superannuation is starting to look like a very interesting solution, isn’t it?

      Staying healthy costs more

      Hopefully your twilight years, and mine, are going to be healthy and wealthy. But old age is going to happen and everyone has to deal with it. Realistically, you can expect to take a few more pills than you used to and undertake more medical tests than a younger person.

      Australia’s hospital system and prescription scheme is bursting at the seams as medical technology removes cataracts from eyes, transplants vital organs and opens up hardened arteries. In the past, conditions that would have killed people, or severely disabled them, in their fifties and sixties, are now cured or successfully managed using common medical procedures. These developments are fantastic and have opened the door to a greater quality of life for older Australians, but this technology also costs money – lots of it.

      Due to the ageing population and the understandable demands for reasonable health, the number of prescription drugs subsidised under the Pharmaceutical Benefits Scheme (or PBS) has risen rapidly, triggering a funding crisis for the Australian government. The PBS subsidises selected pharmaceuticals for Australians and provides concessional prices on medication for those holding a concession or a health care card.

      The demand for nursing homes, nursing care and home help inevitably rises as illnesses associated with ageing increase, mirroring the ageing population. These services cost a lot of money and the government subsidises many of them, but are these funding practices sustainable when Australia has multiple generations enjoying retirement at the same time?

      Who’s going to pay for it all? You, if you’re still a taxpayer.

      Expecting a reasonable lifestyle

      You probably know already that not working costs less. You don’t buy lunches as often and you don’t have as many transport costs because you’re not travelling to work. If you previously worked in an office, you’re now going to spend a lot less per year on clothes as well.

      For many people, by the time they stop working they’ve paid off or nearly paid off their mortgage, educated their kids and cleared most of their debts.

      So, retirement is supposed to be a breeze on the Age Pension. The Age Pension is around $22,200 a year for a single person or just under $33,500 for a couple (until March 2015, with increases twice yearly after that time). Hmm … realistic? Your response to this question probably depends on your lifestyle expectations. Will your desired retirement lifestyle cost more than what the Age Pension can deliver? If so, now is the time to start planning for your retirement. For more information on how much super is enough, see Chapter 3. For the latest Age Pension payment rates, check out my SuperGuide website (www.superguide.com.au) or go to the Department of Human Services