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?

First posted at:

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At March 22, 2010 4:08 pm, Blogger The Climate Sceptics Party Blog said...

G'day Ian,

Watch out! Chief Agmate Steve Truman does not look kindly on people posting on Agmates refering to outside blogs.

A few people have felt his wrath.

At October 18, 2010 10:33 am, Blogger Keith said...

Your thesis is reasonable, however there are countervailing trends also at work : family breakup, increasing debt levels of those approaching retirement age, housing bubble that must reset one of these days.

I am not for one moment defending fund managers, just suggesting that the family home is not that great an asset, when the above is taken into account. Individual cases will of course be different.

As a trustee of my own SMSF, I am supportive of people taking a greater interest and involvement in planning and provision for their future retirement.

On the subject of SMSF's, fund managers are only too happy to run misinformation regarding the "high costs" of running one, and in spreading scare stories about SMSF's being dodgy and campaigning for greater government interference.
The truth however, could not be more divergent.

My SMSF for example, costs approx $500 per annum in audit fees, and cost aroung $500 in total to set up.
(I do my own accounts and investment decisions).
I doesn't take much of a nest egg to see these costs as insignificant in the scheme of things.

At October 18, 2010 11:32 am, Blogger Ian Mott said...

My costs for SMSF are much the same, Keith. But in our case, where the fund owns a coastal rental property, we are more than likely to sell our existing home on retirement and move to the place owned by the super fund. Both properties form part of a sensible retirement savings plan and any suggestion by the funds management industry or ill-informed politicians to the contrary are quite false and misleading.
You might be interested in an article on the impact of the statutory super levy on regional economies at

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