Monday, March 22, 2010

Half Truths in Retirement Saving

Be careful now, they are after even more of your money.

The entire funds management industry has been guilty of gross misrepresentation of fact in relation to the future retirement funding of Australians. They assume that retirements will only be funded through formal savings plans, less their own commissions, of course.

But they, and their self appointed champion, Paul Keating, forget that most Australians have parents, who own a house. And by the time each of us approaches retirement age our parents will be passing on and leaving the overwhelming majority of us a share of, at least, the median house price. This is currently in the order of $400,000 depending on where they live. And the further into the future we go the larger that average share will become because the average family size is declining.

So people born in 1950 are likely to inherit a quarter of the median house price. Those born in the 1970s will inherit a third and those born in the 1990s will inherit half of whatever the median house price is when they retire in the 2050s. Add those funds to a 9% superannuation scheme and very few Australians will be anywhere near underfunded in retirement.

So forget about the market spivs and all their scams for using the equity in your own house to fund a long retirement. The equity in your parent's house will arrive at about the same time as you will need it.

It is so painfully obvious that it is downright shocking to note that we currently have a retirement savings policy that is completely devoid of all consideration of inheritance and intergenerational transfers. It is doubly shocking because inheritance remains the key element of capital formation in most families, on the whole planet. It is almost like someone forgot to input this basic element of wealth accumulation into the cyber based mindset. Along with the absence of a site from which to download common sense, the role of inheritence in retirement funding has also slipped below the cyber radar.

One must ask, which planet has Keating been on all these years? And what, exactly, has been his purpose in building his own wealth, if not to ensure the future wellbeing of himself, his children and his grandchildren?

Or is it simply the case that the sons and daughters of no-hopers that now make up a large part of the Australian Labor Party had no idea of the concept of family wealth creation in the first place? And have shaped policy for the rest of us, entirely on the basis of their own ignorance?

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