Money never ages

Kaye Fallick, publisher of YOURLifeChoices, has a strong message for our ageing population. Photo: Mal FaircloughKaye Fallick will answer readers’ questions and comments for an hour today from noon. Leave your thoughts here

With a three-year national electoral cycle, which reaches a cathartic political peak on the day of the vote, issues ebb and flow, but the ageing of the population will be an ongoing challenge for our politicians and citizens for many parliaments to come. Indeed, it is a public policy problem that goes beyond party politics.

By 2050, the number of people aged 60 and over will exceed that of people 15 and younger. This demographic flood of elderly people has profound social and economic implications for individuals and for the community as a whole.

It is caused by the combination of increasing life expectancy, driven primarily by medical advances and healthier lifestyles, and of lower birth rates, which reflect family planning methods such as the contraceptive pill. Lower infant mortality has also contributed.

The ageing of the population is one of the three mega-trends influencing life across the world. The other two are digital technologies and environmental sustainability.

Today’s guest in The Zone is one of the nation’s leading thinkers on ageing. Kaye Fallick is publisher of YOURLifeChoices, Australia’s number one website for retirees and pre-retirees, with an audience of more than 100,000, of which 86 per cent are aged between 50 and 75. YOURLifeChoices focuses on health, wealth, travel, work and technology and provides subscribers with a daily newsletter.

She is also a director of the Toronto-based International Federation on Ageing, has written two best-selling books, Get a New Life and What Next, Your career change companion and is undertaking a PhD at University of Melbourne on the barriers to a sustainable retirement income.

Fallick has two overarching messages: a big chunk of the population is poised to stop full-time work and does not have enough money to meet the daily cost of living; and those people should start to fix their financial problem by cutting spending.

”Above all else, stop spending so much money. Here is the elephant in the room: we do all spend too much money. We all have things now in our lives we do not need. This is an argument of sustainability. We have got too much stuff. The stuff costs us money and it’s pulling down on the money we will need, because we will live literally another 30 years.”Read the full transcript of our interview

The facts and figures are stark. In the past 50 years, the life expectancy of an Australian has increased to almost 82 years from about 70 years. During that time, the average number of births per woman has fallen from 3.5 to 1.9.

A man born in Australia today can expect to live almost 80 years, up from 77 years a decade ago. For women, the corresponding figures are 84 and 82.5.

According to the Australian Research Council Centre of Excellence in Population Ageing Research, female life expectancy at birth in Australia is forecast to be 89 by 2050. For males, the figure is 84.

By 2050, the number of Australians aged 65 and above will have hit about 7.2 million, up from 3 million in 2010, a multiple of almost 2.5. By contrast, the number of people of traditional working age, 15 to 65, will be only about 1.2 times bigger, rising to 19 million.

That will mean the number of people of traditional working age for each person of 65 and older – the traditional retirement age – will almost halve from five to 2.7.

This will hit the federal budget: there will be relatively fewer taxpayers and more people living in retirement, the majority on the age pension. Government spending on pensions is forecast to rise from the equivalent of about 3.4 per cent of gross domestic product, which measures the value of the goods and services we produce each year, to almost 5 per cent.

This increase would be bigger were it not for the compulsory superannuation system established by the Hawke and Keating governments, which has generated the world’s fourth-biggest pool of retirement savings.

That system, though, has also generated a false sense of security. Most retirees, and the mass of baby bombers (born between 1946 and 1964) heading towards the end of full-time employment, will rely on a pension after leaving the full-time workforce.

”Most people now aged in their 50s and 60s are very much underfunded for their longer lifespan. Many baby boomers, in fact about 60 per cent to 70 per cent, will move into retirement and have to rely on a full or part age pension. That is not rich. And this will be the first generation to enter retirement with sizeable home mortgages.”

Fallick argues the concept of retirement itself is becoming redundant, that people go from full-time work to a melange of casual work and leisure. The need to keep earning at least some income has been accentuated, she says, by the hit so many people’s retirement savings took during the global financial and economic crisis.

She argues that the media treat older people unfairly. ”The way we understand the world generally is through the stories we tell and the stories we’re told. Right now the stories we’re being told about older people in Australia are very patronising.

”Older people do physically interesting things, do mentally interesting things like getting degrees at 85. Older people do all the things younger people do. I do think we need ageing activism.

”The assumptions around older Australians are being made often by young image makers and writers who don’t really understand the personal experience of 50 and 60-year-olds.”

Fallick rejects the widely held notion that baby boomers are greedy, that they are ”spending the kids’ inheritance” – which has led to the somewhat derogatory acronym SKIs.

”Many people who are currently aged in their late 40s, 50s and early 60s are actually allowing their kids to live at home far longer than previous generations. These kids tend to live at home or they are boomerang kids, coming in and out of the household.

”Many young people are taking longer to finish degrees or are doing second degrees and the baby boomers’ potential retirement income is being tipped into firstly, school fees, private school fees perhaps, HECS debts and so on. So baby boomers are, in effect, funding the coming generation. They are not spending the kids’ inheritance; they are passing it on right here and now.”

One of Fallick’s biggest concerns is the difficulty in finding independent financial advice. After all, it was only on July 1 this year that legislation, called the Future of Financial Advice (FOFA), was brought in that explicitly stated the client’s needs should be the primary concern.

Fallick believes this long-overdue reform is well intentioned but fails to deal with the problem that advisers are under pressure to sell financial products, many of which are too complicated for most people to comprehend.

”It is really absolutely bizarre that it has taken until 2013 to note that a financial planner should put the client’s interests ahead of their own.

”The only person who [is permitted] to give you financial advice is a licensed financial adviser. However, when you want an independent financial adviser you start to struggle because most financial advisers are employed by the big four banks or by companies such as AMP.

”These companies manufacture financial products and, really, encourage their financial advisers to sign people up to their managed funds or their annuities or whatever else the financial product is.

”I say Dracula is in charge of the Blood Bank, which is probably a little strong, but here we have a struggle that the person who is dealing with you, by law since July 1, must have your interests first and foremost in this relationship, but this person is employed by a company which wants that person to recommend to you their financial product. There is a conflict of interest that continues to exist.”

Her advice is to seek information from a Financial Information Services Officer (FISO) at Centrelink, but she warns there are far too few of them to meet existing demand, let alone the demographically fuelled explosion about to happen.

She also believes it is worthwhile talking to a trusted accountant. Beyond that, union superannuation funds have good education programs for members, she says.

But, returning to her most fundamental piece of advice, retirees and pre-retirees should cut spending on unnecessary things and put as much as they can into interest-bearing assets to benefit from compound interest – interest paid on interest.

Money invested in a financial asset that pays 9 per cent a year is doubled in eight years; at 5 per cent it doubles in 15 years.

She does not believe self-managed superannuation funds are suited to the majority of people: they require too much knowledge of taxation and other law, and of investment markets. And, anyway, most people do not have the money as about $250,000 is seen as the minimum required to justify setting up a self-managed fund.

Fallick subscribes to the widespread wisdom that a happy life requires but three core elements: someone to love, something to do and something to look forward to. She believes, though, that unless pre-retirees act urgently, their scope to have something to look forward to is far more limited than they might imagine. That’s a rude shock for people who’ve worked for decades and might believe they’ve earned a secure retirement.

The original release of this article first appeared on the website of Hangzhou Night Net.

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