If you have an asset growing at 10 per cent per annum, compounding, your asset will be worth double its current value in just over 7 years.
Conversely, the same will be true for an expense growing at the same rate.
Unfortunately, when it comes to our government in Australia, we have the latter problem.
We have a pension dependent culture in Australia.
700 Australians retire every day and 6 out of 7 of those retirees rely on the pension.
For context, the pension is $27,000 per annum for a single retiree and $34,000 for a couple.
It doesn’t seem like a lot of money when you consider the average Australian earns $90,000 per annum, and the average household $130,000.
Yet it’s one of the most generous pension systems in the world.
Unfortunately, we can’t afford it. And I think it’s only a matter of time before the Government is forced to make significant changes to the pension system.
The Government spends $700 billion a year and 40 cents of every $1 goes toward paying for our generous (but expensive) pension and welfare system.
It’s an expense that has been growing by 5 per cent, compounding, every year for the past decade.
At this rate, it will double in the next 7 years, despite the Government lifting the age of eligibility from 65 years to 67 years of age.
It’s not the Government’s fault either. The ratio of retirees to tax payers increases each day because:
- the biggest generation Australia has ever produced – Baby Boomers (born 1946-63) – is retiring;
- the smallest generation Australia has ever produced – Gen Z (born 2000-17) – are replacing them;
- we are experiencing high inflation and living longer.
It’s why Australia is bringing in so many working age migrants and students (cue the housing crisis).
Our homes are exempt from the means testing when it comes to pension eligibility. This will inevitably have to change.
There are people sitting in multimillion dollar homes collecting the pension today. The moment a retiree sells their home and downsizes, they jeopardise their ability to receive the pension because their home value is exempt from the assets test.
1.2 million houses in Australia are owned by retirees. 9 out of 10 are occupied by just 1 or more people, while 3 out of 4 have 3 or more bedrooms.
By providing incentives to retirees and pensioners who sell their homes and downsize, you kill two birds with one stone – reduce the pension cost and unlock housing.
Huge opportunity for our government.
Major issue for the next generations of Australians who will likely end up working their whole lives, pay off their home, and have little to no income in retirement unless they take matters into their own hands.
