The handing down of The Budget this week by the Government was, I have to say, a public relations success for the Liberal Party. The magical words surplus and tax cuts had the media eating out of their hands, and people celebrating that Australia is doing ok – we are back in the black.
While everybody wants to feel like things are going well, we in the industry know that it’s far from the truth. While key economists came out and openly disagreed with the government forecasts of 2.75% wages growth, with NAB chief economist saying “we see higher unemployment and significantly lower wages growth,” most people want to believe that things are going to get better, and that is just around the corner.
While the finance industry has a unique advantage in understanding the climate we are in, and not buying into a good times are coming story, what worries me the most is the even bigger picture.
Unfunded Age Pension liabilities globally are, I believe, one of the biggest looming disasters facing people in the next 20 to 30 years. When Generation X comes to retire, things will be looking more like a scene from The Hunger Games – with many people vying for limited resources.
And the impact of baby boomers retiring is going to hit Australia a lot sooner. In fact the Budget Office states that the number of people of retirement age for every 100 working age people is projected to increase from 21 to 29 by 2031, during a unique period as Australia’s largest generational cohort retires and the workforce loses more than 600,000 workers.
Revenue in this time is projected to fall by around $20 billion as a result, while spending is predicted to increase by $16 billion in 2028. That’s not 30 years away – it is 12 years away. My youngest son will be finishing university and ready to enter the work force at a time where the Age Pension will be at a greater cost to the country than Medicare, education, hospitals or schools.
So while the government celebrates a surplus, and the opposition claims that they will deliver an even bigger one, to me it is the equivalent of telling everyone to enjoy their day at the beach while an economic tsunami looms on the horizon. While it’s never fun to be the bearer of bad news, and I’m starting to get the reputation in my friendship circle as Doctor Doom, it is far better to prepare for what’s coming than to blindly go on thinking all is ok – only to be caught up and totally unprepared.
While baby boomers were born into tougher times and learned the value of money, our generation and the generations since, have never really seen tough times. When boomers make their exit, it’s going to be a much tougher place for everyone else left holding the bag. The fact that we have not built resilience through necessity means that muscle will have to be developed on they fly – as things become tougher and tougher to sustain.
That’s why I’m determined to teach as many people as possible to get ready for the storm that is coming. Contribute more to superannuation and get rid of debt. Play a smarter game so it’s not so tough in the future. While advisers are under continued pressure to survive what is the toughest environment we have seen for the past 25 years, it’s crucial that you do survive and thrive – to help get Australia ready for what is coming.
Until next time,
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