The era of entitlement IS OVER – What can be done?

Joe Hockey delivered the nation’s 2014 Federal Budget last Tuesday. He was true to his word about it being a tough budget and based on the changes they want to push through the senate and bring into law, it certainly didn’t miss any of us, as their catch cry stated “we are all in this together”.

I’ve said it before and I’ll say it again, I cannot help but feel for the people who are on the basic pension rate. How can any single person trying to run a household live on $19,916 per year? The same goes for a couple who currently set the challenge of living on $30,024 a year.

These retired folk have done a lot towards building our nation during their 40 years of work, and many of them believed that come retirement age the government would take care of their needs. It was only in the early 90’s that we saw the introduction of compulsory Superannuation, as the government’s treasury started to forecast the cost of supporting the retirement population who were going to live longer than the generation before them. For me, some of these people have a right to expect some entitlements from the government because they had a real expectation that that was what was going to happen.

In my opinion, there is a percentage of the early baby-boomers who could certainly argue their line of being ripped-off or at least short changed to some degree considering what’s happening today with regards to their pension payments. Irrespective of which political party is in control of the purse strings, both parties have a lot to answer for.

As for the rest of us, I’ve been saying for at least 10 years now that the increase of the working age before you could access a pension was bound to be as much as a reality as the two other certainties in life: Tax & Death. Following Joe Hockey’s budget speech, these changes will become law at some point in the future; and just as importantly, the age of 70 will just be the start of it. I’d expect this will increase further as we move into the 2020’s to most likely 75 and then as we move into the 2030’s you will need to be in your 80’s before you will have access to any government entitlement relating to an age pension.
For most of you who are 20 or more years away from retiring, this all seem quiet hard to relate to and not really relevant to your lives right now – right? Well, that is the way most people respond to financial matters, the head in the sand trick. These are the people that only maybe 10 or as little as 5 years before they think they are going to retire, does the reality of their situation hit home. And for them this reality looks like this – no reasonable prospect of retiring for several more years, or they are going to take a massive hit to their living standards and quality of life, as the funds they have been able to put away through super and savings, simply isn’t enough and usually results in them generating significantly less income than when they were working.

For those curious about how to roughly work out what level of superannuation/investments/savings one needs in retirement – here is a very rough and simple way to calculate it. If you want to live an income of $100,000 a year then you need $2,000,000 in income producing investments earning a 5% income return (that’s without drawing down on your capital value and that’s in present value terms).

That is no mean feat, but I suppose what the latest federal budget has highlighted for the first time is that, in the future we cannot expect the government to be there for us in retirement.

The old saying rings true and its one that I have been spreading the gospel on for a long time now: “If it is to be it’s up to me”.

It’s you who needs to take responsibility for your future financial position, because the government of the day isn’t going to be there like they have been in the past for some.

In fact I hope those of you reading this, already know this and that’s why you are taking action. If you are, my final message is one; you need to have on honest internal assessment with yourself and your family. Are you the ‘right’ person to be handling this challenge?

Let me expand on this point further. What I’m saying is if you are honest with yourself, are there people better qualified, better able to assist, with more knowledge and experience in this field than you and, are you willing to risk your financial future by taking the challenge on alone? In other words if you are the person/s responsible, with your limited knowledge, resources and experience, what hope or what confidence have you got of achieving financial independence?

Remember, knowledge is empowering if you act on it.