Killing a golden goose
A piece of broker research came out last week that described the budget as a sensible one but an almost suicidal one for a government four months out from an election. Instead of trying to buy votes, it seemed intent instead on putting as many noses out of joint as it possibly could.
The research then went on to list the winners and losers.
Among the winners were education, infrastructure, health and the disabled, and among the losers were business, resources, anyone paying income taxes, families, multinationals, foreigners and a large and terribly sensitive group of voters. I'm talking about the baby boomers and superannuation. There are 5.5 million Australian baby boomers, which equates to 24 per cent of the population.
The youngest is 48, the oldest is 68, the first one retired three years ago, they are all of voting age and they account for 30 per cent of Australian voters. Basically, the message is, if you ever want to get elected, you have to be nice to them.
I'm sure the boomers don't want or need your sympathy but they might have hoped that at least the government would spare them a thought, treat them kindly and not mess with their expectations any more. Because, let's face it, these people, as well as every other Australian who is older than 68 (add another 13 per cent of the population), have worked all their lives to build a nest egg only to see the GFC, in some cases just three years before their retirement, blow a massive hole in their equity investments, a massive hole in their confidence in financial markets and a massive hole in their confidence in their own investment abilities, not to mention a massive hole in their expectations for their standard of living in retirement.
They are a sensitive lot, this 30 per cent of voters, 43 per cent including the pre-baby boomers, and messing with their expectations will get a reaction. So rather than threaten them with tax increases, irritate them with uncertainty, baffle them with complication and paint them as a target, the Australian Treasury would be well advised to provide them with simplicity and certainty and welcome a large chunk of the population who have taken their knocks, are not going to burden the taxpayer in their twilight years and could quite honestly do with a bit of love.
And for those of you for whom retirement is still in the distance and sympathy is beyond you, let me paint the picture of what retirees go through, and which eventually you will go through, so you can prepare.
Before retirement, you are in what the taxman calls the accumulation phase. As someone who had a mortgage at the age of 20 and has four kids going through school, I've always thought the taxman should have recognised the debt phase before the accumulation phase, but that aside, in the accumulation phase, you are earning money, investing in growth, taking risks and building assets.
In retirement, in the pension phase, everything changes. What you've known for the past (say) 65 years, earning money and growing your assets, stops dead. Suddenly you are faced with a completely different game. You now have a finite sum of money and that's it. It doesn't grow any more because the miracle of compounding no longer applies because in order to feed yourself you have to eat the returns, in which case success means ending the year with the same amount of capital as you began it, having lived in the interim.
Consider that $1 million only earns you $43,000 a year risk-free and the Association of Superannuation Funds of Australia retirement standard, which benchmarks the annual budget needed by Australians to fund a comfortable lifestyle, says you need $56,317 to live comfortably as a couple.
You then begin to see that even a millionaire retiring couple, who, by the way, have a life expectancy of 18.3 years for the man and 21.5 years for the woman after retirement, will see capital preservation as priority No.1, income as No.2 and trusting a government or a 25-year-old commission-driven financial adviser who sees them as a target as priority No.1000.
Superannuation assets are expected to grow five times, from $1.4 trillion to $7 trillion, before 2030, but anyone, from the government to the finance industry, who wants to take part in that growth will have to care about them, service them and stop exploiting them. They've had enough, as I'm sure they'll make clear in September.
Marcus Padley is the author of sharemarket newsletter Marcus Today. For a free trial, see marcustoday.com.au.