Thanks for your interest in Retirement Essentials.
It’s been a challenging year, hasn’t it? With Covid 19 lingering and varying and forcing us into short or prolonged lockdowns. I’m sure it’s brought its difficulties for you, just as it has for me here in Melbourne (6 months in lockdown, limited visits to grandsons in Victoria, no pilgrimage to Norway to see my 3 grandkids there, including the new one, and holding my mother’s funeral with only 10 attendees last July).
Old Will Shakespeare usually had something to say on most major things human and his line that comes to mind is: “When sorrows come, they come not single spies but in battalions.” The virus and especially the current Delta strain seems to be just that a battalion of trouble makers.
Many retirees would have started the 2021 financial year at least a little worried, since the share markets had dropped so dramatically in March 2020 and the economy looked like it was in deep trouble due to unemployment increasing and so many having to rely on government handouts through JobKeeper and JobSeeker.
One of the good things – for those on the part pension – was that the pension increased as asset values fell due to market conditions. That’s a neat feature of the Age Pension system, it’s sort of got “automatic stabilisers” built in. And the government added a little Covid bonus to the system with several stimulus payments for Age Pensioners and Commonwealth Seniors Health Card holders. And while there was no inflation increase to the pension in September last year (for about the first time in 30 years), there was also no inflation at that time.
The surprising thing was how quickly the economy and the share markets rebounded, once there was clarity that vaccines were on their way. FY2021 turned out to be a very good year for the local share market, with the ASX 200 up 28% including dividends, and the US market was even stronger.
Australians save during the pandemic
Most Australians increased savings during the pandemic. It was harder to spend money with lockdowns stopping us getting out and browsing in the shops…and, well, you couldn’t spend it on some of the things you normally might, like going out, or parties with friends, and for many travel was not possible or practical, and certainly not international travel.
It turns out that the government is a little worried about retirees not spending enough in retirement. Apparently, retirees, on average, die with around 90% of the assets they had at retirement. The Treasury speculates that it’s due to the uncertainty about how long we’ll live…and so we’re cautious about spending. And another factor is a concern that the Age Pension won’t always be there.
If either of those factors has limited your spending, we can help. In April we launched a Retirement Income and Spending Calculator which shows how much you can spend and have it last until your target “run out” date, even in bad market conditions. This calculator uses very sophisticated calculations to give you a better understanding of what’s a very difficult problem: How much can I spend without running out too soon? You know, it took me a year to work out how to walk, with a mask, in Melbourne’s winter without fogging up my glasses so I couldn’t see. I feel most retirees walk around in the same fog, not knowing how long their money will last.
And on the question of concern about the durability of the Age Pension, let me try to build your confidence. First, the Retirement Income Review showed that the pension only consumes a very small portion of the budget and it’s expected to decline over the next 40 years as a percentage of GDP (to 2.3%) despite the growing number of older people. It’s really quite a sustainable expenditure. Second, I don’t see any government having the desire to take on older Australians by undermining the Age Pension as the key pillar of retirement. It would be political suicide.
What you can expect from us in the future?
You can think of our motto as “we help you get a better retirement.” We started with helping with entitlements, like the Age Pension and the Health Card, because it’s critical Australians get their retirement foundations right and so many people struggle dealing with Centrelink.
Over time, we’re rolling out services that guide you to better retirement outcomes. Our Retirement Income and Spending Calculator is an important first step. But there are other areas where pre-retirees and retirees need help. We see that in your answers to our Age Pension application process. And we know that the current financial planning industry is just too expensive for most people. It’s not just the wealthy that need financial advice. Most people need some financial help and we want to step up and help out with more advice and better solutions.
So, we’ve just started. It will take time for us to roll out more services. If you have ideas how we can help you or improve, we’d love to hear from you. We may be wearing masks but our ears are wide open.