# Super, does it have an Achilles heel?



## Mr Z (17 August 2010)

This is something I have no empirical measure of, it is just a suspicion, an idea that I am keeping an eye on...

Basically it revolves around the demographics of the baby boomers. They are as a group such a significant population bulge that they have been a force unto themselves in many ways. Through out their lives by and large it has been positive but as they hit their twilight years we are seeing more of the downside of having such a distorted population profile.  

The boomers are a large part of our workforce and as a group hold the highest dollar value invested in most all investment areas, one of them being super. As they collectively get to the point that they are no longer putting into super and start drawing down on super we will experience significant selling pressure in the areas that most of their super in invested. The only way this can be held static is if the funds flowing into the market more than meet the redemptions. Given the demographics of the following generations I can't see that this is likely. So I am kinda seeing the boomers as a bear market in themselves or at best a significant market headwind. My approach with my fund is to be invested where I think the boomers are not concentrated.

Consider these things...

1. It's selling at the margin that turns a market so it does not take a huge imbalance to driven a market lower.

2. It is a vicious cycle, as this money is needed for income the lower the market moves the more needs to be sold to maintain income. Assuming that dividends don't meet current needs... most will not.

3. Markets look forward, once this dynamic becomes apparent it will be discounted in the present, it will not be a slow drift lower if it is an identifiable dynamic.... it will be a 'phase transition' with a relativity rapid move to the new discounted level.

4. Not only are the generations following the boomers less in number they are lesser in wealth and in many many cases they are simply poor money mangers that don't save at all and have debt that would have scared the average boomer when young. They have been born and raised in a benign environment and behave as if there is no risk.... ever.

When you look at the market this way our super system is simply a pay as you go system with the market as an intermediately that can revalue things in the bat of an eye. Ultimately its zero sum, money must go into it for it to come out of it and if this where a traditional gov pension plan officials would be looking forward and worrying about the money in vs the money out over the next couple of decades. (started 2008) 

Some circumstances could mitigate this, things like working longer but I can't think of a reason the problem will go away. Assuming of course the supposition is correct!

So my question is... Is the number you look at in your super account merely a paper gain that will not be there when you really need it. Remember we can't all get out of the market with the number that is printed on our various statements!

The second part of this thought is that should the super system start to fail will we see some sort of government grab for the money with a pension promise as compensation. After all its a big pot of money, government will likely have a big need if we keep spending at this rate! Rudd has even talked about the super industry buying special gov bonds.... what if that is the thin end of the wedge? One mitigation here is that gov will have the same trouble liquidating to get the funds but as they are a single entity if the assets where taken over they could control selling possibly avoiding the worst.

I am bias, I run my own fund and I keep as little money in it as possible. I invest outside of it and take the tax hit, at least I know what I have.... I just can't bring myself to completely trust them. Years ago I had one relative that was completely screwed by a retroactive rule change when he went to cash his super in. At the time he did what he did it was the best thing to do, after the event he got a "by the way you now owe us $x extra" from the ATO, he was gob smacked, fought it but lost. For the life of me I don't understand how in a democracy rules and laws for that matter can be retrospective, frankly it scares me. Ever since then I have been wary about super.

I realize that it would be a huge thing to restructure super in such away but I see it as a response to a crisis which is always when the ugliest things get done.

Now even if there is no such crisis I think you can argue that the probability on some market impact is high so you may want to factor that into your thinking.

*Now please tell me my this is just loony tunes thinking?* Am I over looking something big? Have I just got it wrong? Please try not to attack me, it is just a theory, a talking point if you will! I am not married to the idea, more searching for evidence/ideas around the theme.

One last thing... if this is a real problem it applies to all assets that boomers hold to some degree, RE comes to mind!


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## prawn_86 (17 August 2010)

*Re: Super, does it have an Archilles heal?*

Just a quick reply, cause im at work, but i would think that what you are getting at is similar to what Japan has experienced over the last 20 yrs.

Stagnant/no growth with very little prospects into the future. Their reasonings are slightly different, but they do have one of the worlds oldest population per capita as far as i am aware.


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## nioka (17 August 2010)

*Re: Super, does it have an Archilles heal?*



Mr Z said:


> The second part of this thought is that should the super system start to fail will we see some sort of government grab for the money with a pension promise as compensation. After all its a big pot of money, government will likely have a big need if we keep spending at this rate! Rudd has even talked about the super industry buying special gov bonds.... what if that is the thin end of the wedge? One mitigation here is that gov will have the same trouble liquidating to get the funds but as they are a single entity if the assets where taken over they could control selling possibly avoiding the worst.




This HAS HAPPENED IN THE PAST and should not be overlooked.

Shortly after I started full time work,1947 there was a new deduction from our wages. It was separate from the taxation deduction and was for a new government fund that would guarantee everyone a pension on retirement. 3pence was deducted out of my wage of 27shillings and 6 pence. 
 A few years down the track the government in power transferred all the funds into consolidated revenue with the understanding that we would still get a pension on retirement and it would be paid from consolidated revenue. The extra deduction was included in the income tax.

A few more years down the track and they means tested the pension.

Remember too in those days there were death duties that swallowed up a lot of an estate. One case I recall was a neighbour died and a third of the farm was sold to pay the duties. The son that inherited the farm died two years later and a third of the remaining farm was sold before the grandson inherited the balance. The farm then became uneconomic and the owner went out shearing to cover costs. ( To rub salt into the wounds his wife took off for the big smoke with a truck driver while he was away shearing, took him to the family court and got half his assets so he had to sell the farm. Ran into him recently, retired on the pension.)

So the moral of the story is "don't count your chickens before they hatch".


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## Julia (17 August 2010)

*Re: Super, does it have an Archilles heal?*

Nioka, the exact same thing happened in NZ, I think it was when Muldoon was PM.  We contributed to a specific  Super fund, and then it was all rolled into consolidated revenue.  However, the difference now between NZ and Australia is that they do still provide a non-means-tested pension for everyone from age 65.
Have no idea how they manage to fund this, except that it is included in the individual's tax assessment, so I suppose it's effectively means tested by that measure.

Mr Z, remember that the baby boomers cover the birth years 1946 - 1962, so any moves made regarding their super won't be happening in a sudden or compressed period of time.

The other assumption in your hypothesis is that as soon as a baby boomer hits retirement age he/she will be withdrawing all their super from the market.  Perhaps some of them will, but I'd suspect many will be like me (a baby boomer) and will not change anything on reaching retirement age, other than moving the SMSF from accumulation phase into pension phase.  I'll move my funds from shares to cash and vice versa in line with market trends in the same way in 'retirement' as I've done in the years prior.

I don't live in fear that the government will somehow take my super off me.
Probably wouldn't have the same confidence if I were invested in some public SF.   But I think the political backlash if they were to interfere drastically would be more than any political party would be able to cope with.


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## tech/a (17 August 2010)

*Re: Super, does it have an Archilles heal?*



> So the moral of the story is "don't count your chickens before they hatch".




Ive said this many times before.
Those who do retire and have a healthy super to retire on are far from guarenteed a financially secured retirement until death.

You really need to consider the possibility of lasting 30+ years after retirement.
In 20 or so years time inflation and your own needs will require the need for passive income.
So think about how you can best have your super return you passive income which will keep you ahead of immediate needs.

( I use rental)


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## brty (17 August 2010)

*Re: Super, does it have an Archilles heal?*

Governments tinker with super all the time, though last years raising of the age pension age was probably the start of real change. You wont hear a politician even mention changes this week, but there would have to be a raising of the age you can obtain super on the cards. There will also be other changes over the years, things like the tax free status of super for over '60's will disappear with-in 5-10 years.

Mr Z, the only part of your post I don't agree with is the effect of demographics in Australia. Because of immigration and the baby bonus, our cohort of babyboomers does not look as bad as most of the western world, therefore the effects of the BB's retiring wont be as bad, especially if the govt keeps raising the super guarantee payments percentage of the workers.

brty


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## Mr Z (17 August 2010)

*Re: Super, does it have an Archilles heal?*



Julia said:


> Mr Z, remember that the baby boomers cover the birth years 1946 - 1962, so any moves made regarding their super won't be happening in a sudden or compressed period of time.




This is true, I would like to see some distribution numbers to see if there is a bulge in the boom. I would guess it is front loaded?!

Found this...







The concern is that if at any time the retiring numbers tip the balance on the working numbers the thing starts to head off in the wrong direction possibly compounding. That would impact people like you and me, I will react if it appears to be damaging my fund significantly.

My back of the envelope calcs put boomers at 4x% of the workforce, from memory. Really must go look that up again! I think they where like 25% of the population and by the time you backed out the retired, to young to work & students (assuming unemployed and those not seeking work are evenly distributed across the spectrum) ... anyway it put them toward half the work force. It sounds wrong now...!!! anyone got a good source? I will go look when I have some more time.


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## Mr Z (17 August 2010)

*Re: Super, does it have an Archilles heal?*



brty said:


> Mr Z, the only part of your post I don't agree with is the effect of demographics in Australia. Because of immigration and the baby bonus, our cohort of babyboomers does not look as bad as most of the western world, therefore the effects of the BB's retiring wont be as bad, especially if the govt keeps raising the super guarantee payments percentage of the workers.




Immigration is a logical fix but I have read claims that our immigration laws mean that we basically get a big age spread because other family members are often brought out after the immigrant. The claim was it actually didn't impact the demographic spread as you would expect.

I dunno about that one, left me head scratching!


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## explod (17 August 2010)

*Re: Super, does it have an Archilles heal?*



tech/a said:


> Ive said this many times before.
> Those who do retire and have a healthy super to retire on are far from guarenteed a financially secured retirement until death.
> 
> You really need to consider the possibility of lasting 30+ years after retirement.
> ...




Not the whole story Tech.  My DIYouself funded super fund will outlast my wife and I as we make the investments and trades within in it.  On the performance of the last six years it should continue to grow exponentially providing we keep picking the right investment plays.  

And in old age a great interest as well.  What we should be doing is giving people a proper financial education.


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## Mr Z (17 August 2010)

*Re: Super, does it have an Archilles heal?*

But how does a market grow without a constant supply of new money? It can't, not all can win, especially not to the degree you have. The maths stops working unless ever expanding amounts of money arrive on the scene. That may happen if it is simply printed (QE) but the value of it will be ??????

I note that Walmart saw a 6% month on month price rise recently. The largest in its history... 72% annualized rate.  This massive stimulus will flow to prices sooner or later which will lead to higher rates which will compound any structural issue the market has. Big inflation has happened, we are a little bit pregnant in that regard but not showing that much here in Oz just yet.

Explod, play your cards close... this will become dog eat dog IMO. Zero sum game remember!


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## Pager (17 August 2010)

*Re: Super, does it have an Archilles heal?*



Learning to trade/invest using a low risk strategy is going to be the best way forward IMO, handing over your super egg at retirement as many do to fee based or commission based advisors will see many get stung no matter how much regulation there is.

During your working years learn to invest/trade so hopefully by retirement you can take control and run your own super/investments if you haven’t beforehand without paying fees and commissions to others, plus you have control over what happens, its also a good way to keep the mind active and although im a long way off retirement its also very rewarding and satisfying to do IMO


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## Mr Z (17 August 2010)

*Re: Super, does it have an Archilles heal?*

+1

At least with a SMSF you can run a counter strategy if required and be extra vigilant about loss control.

Suits me but then I am a control freak....! Kidding... kinda... a little


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## awg (17 August 2010)

*Re: Super, does it have an Archilles heal?*

Hi Mr Z,

The questions you raise could effect almost any investment class, especially if you regard super as merely a tax efficient vehicle for investment that can include any asset?

I fully expect that regulatory changes affecting super will be made that reflect govt budgetary requirements though.

Thats the way govts work, as Niokas example clearly illustrates.

People often used to ask me why a certain policy of government policy had changed that effected them, and when I was honest, it was always about either getting a vote or saving a $.

Not to mention sustainability of many unknown variables into the future

May I enquire what is yr approx age demographic?


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## basilio (17 August 2010)

*Re: Super, does it have an Archilles heal?*

That was a long story you ran on super Mr Z.  I thought your logic and the inevitable consequences far too realistic to be seriously acknowledged.

One of the points you didn't mention but which is also (in my eyes) a significant issue is the role of charges on the super funds. In my view the ticket clipping of firstly individual fund managers and then the super funds themselves  saps much of the investment value allegedly accrued in our super. It usually runs at around 2% of the whole fund each year.  To put that in perspective if the fund is gaining  8% a year *then a quarter of that gain is being lost in fees and administration. *  And of course if you have a couple of bad years it looks far worse.

I don't have a solution. I'm just very cautious about believing that there will be a continuing exponential growth in  share market  and property values that will support the super schemes in place. Let's remember that this is the very first time  a society has attempted such a wide ranging  process. We're the guinea pigs.


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## Mr Z (17 August 2010)

*Re: Super, does it have an Archilles heal?*

I'm a boomer as well  !

We are the crowd when it comes to investing which is why I pay close attention to what my friends own... always listening, never talking when it comes to money chat. What they think gives me a general heads up, that is why I need forums, its therapy  I know I 'm a turn coat, but nobody else will pay my bills! 

Besides if they found out I starting buying gold in 2001 they'd have poked fun at me ever since. I got a thick skin but that'd be too much.

Yup I just can't bring myself to trust the gov over $ given what is transpiring. Maybe it will be to my detriment in the end but that is a risk I will take.

I notice that Abbott is talking infrastructure bonds & super... it is a rising theme. Trust us we are from the government and we are here to help : hmmmm "yeah right" LOL the only two positives I know that make a negative!

Hopefully its a baseless concern in the end but I think it bears keeping in mind.

Cheers
Z


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## So_Cynical (17 August 2010)

*Re: Super, does it have an Archilles heal?*



Mr Z said:


> 2. It is a vicious cycle, as this money is needed for income the lower the market moves the more needs to be sold to maintain income. Assuming that dividends don't meet current needs... most will not.




I think this (above) is a bit of an Achilles heel in your theory...the cooper review into super was a very comprehensive study revealing some amazing stats.


30% of the total funds in Aussie super are held in SMSF's (over 332 billion)
The average member balance inside SMSFs is $456,000
SMSFs beat larger APRA-regulated funds in earnings by usually 1 or 2% PA

So i would conclude that 30 to 35% of the boomers will be self managed and thus doing ok and have no need to eat into there capital..well certainly wont be forced sellers anyway...that leave us with the APRA-regulated funds and
Mysuper, they have and will tend to have a greater proportion of funds allocated to off shore/non stock market assets.

I don't see a big problem unless.

Perhaps the very peak of the boomer age class bubble combined with a GFC of some kind and super low interest rates could come together  into a perfect storm.


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## Mr Z (17 August 2010)

*Re: Super, does it have an Archilles heal?*



basilio said:


> I don't have a solution. I'm just very cautious about believing that there will be a continuing exponential growth in  share market  and property values that will support the super schemes in place. Let's remember that this is the very first time  a society has attempted such a wide ranging  process. *We're the guinea pigs.*




Yes I suppose we are!

In the end the fin industry holds the power in this equation so its inevitable that it will skew the playing field its way.

This thing would work better if we had a constantly growing base as it was when pensions first came about. However as we are learning growth has its own problems! I was really struck when I realized that no matter what you do this is actually a "pay as you go" system. Sure its more complex and distributed differently but at the end of the day with the markets being zero sum every dollar that comes out must go in. This is not a big saving account! From that stance its not so different from pension schemes of old, the currently productive pay for the currently retiring. The only big difference is that the currently productive have a mechanism by which they can re-rate the value of the currently retired assets and funding. Like Mr Ponzis efforts it needs constant new blood at an ever growing rate to fly properly... like Mr Ponzis efforts it has to take a dive at some point, it is built in! IMO staying away form the crowd is the only way to go.


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## Mr Z (17 August 2010)

*Re: Super, does it have an Archilles heal?*



So_Cynical said:


> I think this (above) is a bit of an Achilles heel in your theory...the cooper review into super was a very comprehensive study revealing some amazing stats.
> 
> 
> 30% of the total funds in Aussie super are held in SMSF's (over 332 billion)
> ...




The problem is that most boomers think a like and tend to invest in the same places and $456,000 is not enough to retire in comfort by a long shot. You will need to eat principle with that amount with todays returns and rising costs... especially as lifes little surprises hit. Nothing there actually gives me a lot of comfort. I wish it did


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## Julia (17 August 2010)

*Re: Super, does it have an Archilles heal?*



explod said:


> What we should be doing is giving people a proper financial education.



Absolutely agree.  The problem is that the school curriculum is already very crowded, plus teachers mostly have zero idea about financial matters.



Pager said:


> Learning to trade/invest using a low risk strategy is going to be the best way forward IMO, handing over your super egg at retirement as many do to fee based or commission based advisors will see many get stung no matter how much regulation there is.
> 
> During your working years learn to invest/trade so hopefully by retirement you can take control and run your own super/investments if you haven’t beforehand without paying fees and commissions to others, plus you have control over what happens, its also a good way to keep the mind active and although im a long way off retirement its also very rewarding and satisfying to do IMO



Again, I agree, Pager.  However, many people perceive managing their own super as way more difficult than it is, something probably perpetuated by the financial planning industry.



basilio said:


> One of the points you didn't mention but which is also (in my eyes) a significant issue is the role of charges on the super funds. In my view the ticket clipping of firstly individual fund managers and then the super funds themselves  saps much of the investment value allegedly accrued in our super. It usually runs at around 2% of the whole fund each year.  To put that in perspective if the fund is gaining  8% a year *then a quarter of that gain is being lost in fees and administration. *  And of course if you have a couple of bad years it looks far worse.



Yep, really important to think about the fees.  Many people don't even read their statements enough to appreciate how much they're losing in fees.



So_Cynical said:


> I think this (above) is a bit of an Achilles heel in your theory...the cooper review into super was a very comprehensive study revealing some amazing stats.
> 
> 
> 30% of the total funds in Aussie super are held in SMSF's (over 332 billion)
> The average member balance inside SMSFs is $456,000





You've expressed this correctly, but it's important to remember that this is *average member balance, not average Fund balance, the latter being more than $900,000.*


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## tech/a (17 August 2010)

*Re: Super, does it have an Archilles heal?*



explod said:


> Not the whole story Tech.  My DIYouself funded super fund will outlast my wife and I as we make the investments and trades within in it.  On the performance of the last six years it should continue to grow exponentially providing we keep picking the right investment plays.
> 
> And in old age a great interest as well.  What we should be doing is giving people a proper financial education.




Yeh

Agree
There comes a point where return (if funds enough) outweigh expenditure.
This equals growth and security as inflation grows around us.
And it will!




> plus teachers mostly have zero idea about financial matters.




But Julia every teacher I've met knows everything about everything!

Finally a SMSF I control and I'm not relying on someone else who could go broke-embezzle or skim me.


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## So_Cynical (17 August 2010)

*Re: Super, does it have an Archilles heal?*



Mr Z said:


> The problem is that most boomers think a like and tend to invest in the same places and $456,000 is not enough to retire in comfort by a long shot. You will need to eat principle with that amount with todays returns and rising costs... especially as lifes little surprises hit. Nothing there actually gives me a lot of comfort. I wish it did




The 456K was a 2009 figure so probably 500k now...and in 4 > 6 years double that, and keep in mind thats a per member figure...most SMSFs (67.9%) had 2 members (husband & Wife) so near a million combined...and im gona make a crazy assumption that any couple with 1 million in self managed super will own at least 1 house.

So im conservatively guessing the average net worth of the average couple in a SMSF would be over 1.8 million....not exactly roughing it.  and that's a minimum 30% of the boomers.


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## nioka (17 August 2010)

*Re: Super, does it have an Archilles heal?*



Julia said:


> The problem is that the school curriculum is already very crowded, plus teachers mostly have zero idea about financial matters.




I agree with that. Worse still I find that financial advisers and bank managers do not seem to know much than school teachers, that makes it hard to find a starting point.


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## gooner (18 August 2010)

*Re: Super, does it have an Archilles heal?*

:topic



Julia said:


> Mr Z, remember that the baby boomers cover the birth years 1946 - 1962, so any moves made regarding their super won't be happening in a sudden or compressed period of time.




Wiki states the following



> The United States Census Bureau considers a baby boomer to be someone born during the demographic birth boom between 1946 and 1964.[9] The Census Bureau is not involved in defining cultural generations.
> Landon Jones, who coined the term "baby boomer" in his book Great Expectations: America and the Baby Boom Generation, defined the span of the baby-boom generation as extending from 1946 to 1964, when annual births declined below 4,000,000. They have since returned to higher levels in the "echo boom."
> William Strauss and Neil Howe label American Baby Boomers 1943 to 1960.




So I am little confused - am I a baby boomer or Gen X?  I was born in 1963 so I don't feel like a baby boomer. Julia does not consider me one, but the US census bureau does.........


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## basilio (18 August 2010)

Okay it's* waaay* to late and I should be getting some beauty sleep. ( Certainly need it..)  So let's get radical about what an effective affordable super scheme could look like.

Firstly I have a real query about how on earth more than a very few people can save, invest and grow the $700k plus that seems to be minimum for a viable super pension plan. In fact I'm sure many forum members here will say that is seriously underestimating it. 

Okay some fast talking financial consultant from AMP or AXA or whatever can pull out a spread sheet and show that  saving 9% a year for 40 years at so much return will result in "lots of money" .

..*...As long, as long, as long *as you don't become unemployed, have too many children, get divorced, fall seriously ill, go bankrupt for any number of reasons and so on.  The fact is that reality gets in the way of spreadsheets and my view is that the returns on retail super funds is very, very modest after all the providers get their cut.

So for Plan B.  I would see an effective retirement package including the following

1) A comfortable, paid for home .
2) A spare bungalow out the back for a tenant who pays a couple of hundred dollars a week and is good company
3) An excellent set of PV cells on the roof which destroy my energy bill, pay me a few extra bucks and power my
4) You bewt electric car (which doesn't cost any petrol to run because by now petrol is costing $4 a litre - if you can get it)
5) A neat little community vegie garden I share with a few friends which feeds me, them and has a bit left over to take to a community market
6) A house full of long life white goods ( Washing machine, fridge, water heater, stove which are not going to die for at least 20 years because they were actually made to last. _Truly radical stuff there.._)
7) Enough friends and good company to enjoy a simple but fun life.
8) Some modest investments that do earn some extra money
9) Or even a small government pension..
10)  ............................  
11)  ............................ (add your ideas )

Now I realise this isn't the retirement package being proposed by your average financial consultant. 

But then the retirement package* your financial consultant is proposing for you ...*

*is in fact his retirement package*​


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## basilio (18 August 2010)

> So I am little confused - am I a baby boomer or Gen X? I was born in 1963 so I don't feel like a baby boomer. Julia does not consider me one, but the US census bureau does........




I was actually a bit surprised at Julia's definition of Baby Boomer.

My understanding was that it referred to people born from around 1948 to about 1952-3 at the latest. This was the huge bulge of children born to the returned soldiers and everyone making up for lost time during the war and the  immediate aftermath.



> Baby Boomer cohort #1 (born from circa 1946 to 1955), the young cohort who epitomized the cultural change of the sixties



  From Wikpedia 

It does go on to mention a cohort 2 from 1955 - 1964 - but i don't trust em. !!


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## basilio (18 August 2010)

> *Sixty Percent Of Baby Boomers Don't Have Enough For Retirement*
> 
> Huffington Post   |  Nathaniel Cahners Hindman
> 
> Nearly three in five baby boomers face a financial bust in retirement if the current economic climate persists, according to a study cited in a recent article by the Wall Street Journal.




http://www.huffingtonpost.com/2010/08/16/60-percent-of-baby-boomer_n_683191.html

So this issue is very real. The article is a good read because it highlights just how fickle the economy is and how this will affect our capacity to live to a ripe old age.


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## Mr Z (18 August 2010)

Whatever the average balance is not as relevant as you may think. They are by and large paper gains, until realized they mean nothing. *The income stream that the fund is generating is the number that we should be focusing on.* If it is not sufficient then we will see redemption regardless of fund size. Also the average more than likely consists of 20% jumbo funds and 80% sub par funds, the sub par funds will number higher and will be where the pressure starts.... we only need change at the margin. 

The other thing to think about is the possibility of a decent recession in the long period that these funds will need to preform over. That may tip the balance.

*Attracting overseas investment I see as a major possible support.* This would work if we become flavor of the month globally due to commodities rolling on and choices in places like the US drying up. This could more than support any amount of Australian redemption,  providing of course you are invested accordingly. Really our numbers are so small we could be swamp in OS cash. This still means we are very much tied to Chinas fortunes, and hopefully and increasingly India's (underrated I think!) Lets hope they don't stumble to badly during their assent. Many US analyst seem to want to bury them, often very critical of their financial sector.... green eyed monster or chinks in the armor? I can never quite decide who I think is right, they have amazing momentum regardless!

So my point is that whatever the numbers currently its the dynamics of the cash flows that will decide the outcome. We simply need enough cash in to balance any cash out and make up for any lack of income with capital gain.

The other thing is it takes a bucket load more to retire comfortably than you may think! I know a couple that retired early 90's with a good Syd property and in excess of 1 mil in funds. The have maintained a good middle class lifestyle but have shifted down the property gradient twice and now live country. That was a big number then! Over estimate your needs people! and you might come close. Many of their friends of similar or lesser means have lived a little more lavishly and are now struggling with maybe 10 to 15 years to go.


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## Judd (18 August 2010)

I recall seeing a few years ago some data on retirement funds.  It was well before the GFC so the estimated results on which the data was based have probably been thrown out the window.

It indicated that a couple aged 65, who owned their home and had $1M in superannuation would comprise less than 5% of that demographic group.

Probably still true to some extent but how do you tell 95% of the population that that grey-haired couple walking hand in hand on a lovely beach at sunset is not going to be you and your holiday will consist of a weekend in a caravan at Dromana.  Or that fine dining, eating $75 per head diners and drinking Grange will actually be the Tuesday night special at the local pub if your lucky.


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## pilots (18 August 2010)

Super, WHAT A JOKE, 18 months ago our super was going down hill fast, we moved it to cash, last week we moved it to our own fund. For the 18 months it was in cash we got less than 1.4%return.


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## Mr Z (18 August 2010)

Judd said:


> It indicated that a couple aged 65, who owned their home and had $1M in superannuation would comprise less than 5% of that demographic group.




Thats closer to my expectation, basically markets reward a few and take from the majority. At the completion of every cycle there are less winners than losers, it is just the way markets work. We can't all be right, the maths simply will not allow it to occur.

IF all the baby boomers exit on a market upswing using say an influx of overseas money then it is conceivable that they as a group get out in good shape but real life does not work that way... people tend to stay on the ride until it stops. Anyway net net more will lose in the end than win, the losers simply give their money to the winners.

You could argue the %'s some say the losing component is very high 80-90% and the winning very low. I don't know how you tell, very hard to measure but conceptually the dynamic is easy to understand.

The other component here is that the boomers will become a single or narrow issue voting group if things go sour. IMO you will not win an election in this country without buying their vote. Not such an issue when things are good but if super runs into trouble they will naturally gravitate toward any political party offering answers, however bad they are. They will happily vote other peoples money into their pocket and feel justified in doing so. If things go this way its a setup for intergenerational tension, we have seen some evidence of it all ready in the housing boom. Blame has been laid at the feet of the boomers, rightly or wrongly by some. I have already seen one book on the topic of intergenerational tension without looking. If we get to plugging gaps in super with government assistance and increased taxation I expect that to be passionately discussed social theme. In fact you can start a good fight with that one already! (ducks and steps back, just in case!)

Cheers
Z


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## Julia (18 August 2010)

basilio said:


> I was actually a bit surprised at Julia's definition of Baby Boomer.



It's not my definition.  I'm no demographer.   I've always known it was around what I quoted, but googled it and there are multiple references from different sources all giving that year span.



> My understanding was that it referred to people born from around 1948 to about 1952-3 at the latest. This was the huge bulge of children born to the returned soldiers and everyone making up for lost time during the war and the  immediate aftermath.



No.  Definitely much broader than that.





pilots said:


> Super, WHAT A JOKE, 18 months ago our super was going down hill fast, we moved it to cash, last week we moved it to our own fund. For the 18 months it was in cash we got less than 1.4%return.



That's just ridiculous.  Presume you mean this was the Cash option within a public superfund?   There have been some excellent cash rates around especially in online accounts.  That's yet another reason to run your own fund.


----------



## Mr Z (18 August 2010)

The end of the boomer generation is variously defined as early as 1960 and as late as 1964. I don't think there is a definitive official year, I guess people choose what suits their argument best. I think that the 'first cohort' would be the concern if this idea on an Achilles heel is on track. If we get past their peak needs then things will be looking good IMO. I don't think changing the finishing year will actually have any impact, its that first wave that will provide the stress test for many of our systems. If you want real gloom look into the state of our medical system and its capacity to deal with this. Most of our best medical people are boomers and they are among the best placed to retire successfully. The number of Oz GP's coming due to retire is something like 40% and we cannot plug that gap easily! Lets hope they all want to work longer! Similar for nurses and other people in the system! On the bright side if you are medical the competition for your talent should be intense and rewarding... JMO.


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## YELNATS (18 August 2010)

*Re: Super, does it have an Archilles heal?*



Julia said:


> I don't live in fear that the government will somehow take my super off me.
> Probably wouldn't have the same confidence if I were invested in some public SF.   But I think the political backlash if they were to interfere drastically would be more than any political party would be able to cope with.




As a BB born in the late 1940's, I was a little concerned the other day when I read that Ms Gillard doesn't particularly value the retiree/near-retiree vote, as her preception is that most of those voters vote conservative/non-ALP anyway.

With the ALP leading in the polls with only 3 days to the election, I'm just a little concerned for our SMSF super nesteggs, both near-term and longer term.


----------



## Julia (18 August 2010)

Mr Z said:


> Whatever the average balance is not as relevant as you may think. They are by and large paper gains, until realized they mean nothing. *The income stream that the fund is generating is the number that we should be focusing on.*



I'm going to disagree with you here.   Imo too many people focus on income, ignoring what their capital is doing.   You need to keep the capital growing.
And in a market downturn there should be more attention paid to capital protection.  i.e. get out with profits largely intact when the market turns down, shop around for the best cash return, and buy back in when the market turns back up.

I know there's no unanimity on this strategy, but there seems to me to be way too much passive approach to Super, instead of actively managing it.
Over the last three-ish years, so many people have bemoaned how much money they have lost.  Well, if you just sit back, watch the market falling, and do nothing, then yes, you'll lose money.

The above is directed toward people nearing or at retirement.  Much younger people can more realistically take a longer term view.



> If it is not sufficient then we will see redemption regardless of fund size.



Why are you so sure there are going to be wholesale redemptions?   The new retirees are still going to need an income stream.   I don't see why you wouldn't just continue the same strategy you've used during the accumulation phase, leaving the capital invested and simply pulling out whatever amount you need to live on.   There's presently a dispensation of 50% from the government regarding the percentage of fund capital that must be drawn each year as income, but presumably this will end when we are deemed to be officially out of the GFC.



> The other thing to think about is the possibility of a decent recession in the long period that these funds will need to preform over. That may tip the balance.



Perhaps, but again active management will cope with much of this.




> The other thing is it takes a bucket load more to retire comfortably than you may think! I know a couple that retired early 90's with a good Syd property and in excess of 1 mil in funds. The have maintained a good middle class lifestyle but have shifted down the property gradient twice and now live country. That was a big number then! Over estimate your needs people! and you might come close. Many of their friends of similar or lesser means have lived a little more lavishly and are now struggling with maybe 10 to 15 years to go.



Well, isn't this a case of needing to have a 'long term budget'?  i.e. simply working out on the basis of life expectancy how much you can afford to spend each year?   If you have, say, 1 mil, and expect to live 20 years, decide how much that capital needs to generate each year in order to provide a reasonable income, preferably with enough left over to add to the base in order to allow for inflation,  and manage it accordingly.

Lifestyles will vary and people will have different priorities for their money in retirement.  Some will want to travel round the world every year, replace their car each year, and others won't.



Mr Z said:


> IF all the baby boomers exit on a market upswing using say an influx of overseas money then it is conceivable that they as a group get out in good shape but real life does not work that way... people tend to stay on the ride until it stops. Anyway net net more will lose in the end than win, the losers simply give their money to the winners.



Sure.  And what better reason could you have to educate yourself financially so as to be one of the winners, rather than a passive observer?
(not using 'you' in the personal sense here, Mr Z.)

When you are assuming that the baby boomers are en masse going to exit the market, what do you have in mind that they will do?  Just take the lump sum and spend it?



> Blame has been laid at the feet of the boomers, rightly or wrongly by some. I have already seen one book on the topic of intergenerational tension without looking. If we get to plugging gaps in super with government assistance and increased taxation I expect that to be passionately discussed social theme. In fact you can start a good fight with that one already! (ducks and steps back, just in case!)



Agree indeed that such a scenario would be a justifiable cause for social unhappiness, but I'm just not convinced it's going to happen like that.



YELNATS said:


> As a BB born in the late 1940's, I was a little concerned the other day when I read that Ms Gillard doesn't particularly value the retiree/near-retiree vote, as her preception is that most of those voters vote conservative/non-ALP anyway.
> 
> With the ALP leading in the polls with only 3 days to the election, I'm just a little concerned for our SMSF super nesteggs, both near-term and longer term.



So, another reason for doing it yourself, rather than expose your funds to the so called professional fund managers.
In today's paper, there's a small item about a suggestion from the Libs that they would issue infrastructure bonds, not government guaranteed, however, but with a 10% tax break attached, in anticipation that plenty of Super money would flow into these.  Obviously at this stage, this is going to absolutely be a choice, but I'd be getting pretty wary of more to come.

Thanks for starting the thread, Mr Z.  Interesting discussion.


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## Mr Z (18 August 2010)

Julia said:


> I'm going to disagree with you here.   Imo too many people focus on income, ignoring what their capital is doing.   You need to keep the capital growing.




It does not matter, if the investment is not providing income sufficient for the need you will have to sell it down to get funds to live on. There for the level of income coming in from super is a big determinant of the need to sell. If all super produced enough income their would be no need to sell, at all, ever. This would be a positive thing... but I doubt that most fund are providing enough to live on, which after all is the ultimate aim.



Julia said:


> And in a market downturn there should be more attention paid to capital protection.  i.e. get out with profits largely intact when the market turns down, shop around for the best cash return, and buy back in when the market turns back up.




Sure that works for you... but not for everyone. We can't all exit at todays close if we 'collective' are the market. I am talking about the net effect on the market, sure there will always be winners and losers.



Julia said:


> I know there's no unanimity on this strategy, but there seems to me to be way too much passive approach to Super, instead of actively managing it.
> 
> Over the last three-ish years, so many people have bemoaned how much money they have lost.  Well, if you just sit back, watch the market falling, and do nothing, then yes, you'll lose money.
> 
> The above is directed toward people nearing or at retirement.  Much younger people can more realistically take a longer term view.




Well yes.... this is all about the ones retiring soon and their needs, that is the crux of my argument. Namely that they could over power the funds flowing into the market and drive price lower. By the time the young get there it will be a different scene. I am saying that the boomers are most probably looking at not being able cash in what they think they have due to what might be a concentrated rush for the exit.




Julia said:


> Why are you so sure there are going to be wholesale redemptions?   The new retirees are still going to need an income stream.   I don't see why you wouldn't just continue the same strategy you've used during the accumulation phase, leaving the capital invested and simply pulling out whatever amount you need to live on.   There's presently a dispensation of 50% from the government regarding the percentage of fund capital that must be drawn each year as income, but presumably this will end when we are deemed to be officially out of the GFC.




Selling will have to happen as you note... the question is will that selling over come the inflows from the smaller following working generations. If so price will turn down, unless as noted before it is compensated for by some other source of funds. You are looking at this as an individual, when we get many thousands taking profit for income we could easily have enough pressure at the margin to move price. I actually think this is the real reason behind the desire to up contribution levels, that will go some way to fixing any imbalance.



Julia said:


> Perhaps, but again active management will cope with much of this.




Again for a sharp individual yes, but for the group as a whole and the passive probably not. If not that then opens the door to rule changes as the masses cry foul. You may have your skin intact but that means little systemically. we live in democracies, mob rule basically and if the mob can't get what it needs then we have an issue. 



Julia said:


> Well, isn't this a case of needing to have a 'long term budget'?  i.e. simply working out on the basis of life expectancy how much you can afford to spend each year?   If you have, say, 1 mil, and expect to live 20 years, decide how much that capital needs to generate each year in order to provide a reasonable income, preferably with enough left over to add to the base in order to allow for inflation,  and manage it accordingly.




Sure but its not the complete doddle many would think it is. Across the time of the example there have been rule changes, risk priced to zero and yield all but eliminated. The GFC etc, dealing with all that while going for security (BIG ISSUE at that time of life for most) has not delivered what you would have thought it should if you retired in 1990 with 1 million. The point is with the various pressures going forward (inflation is going to be big!) you are going to need more than most will forecast.



Julia said:


> Lifestyles will vary and people will have different priorities for their money in retirement.  Some will want to travel round the world every year, replace their car each year, and others won't.




LOL... many have and are hitting the wall with lotsa life left! I know a few, but hell they had fun! Now the typical reaction seems to be... well we can't live that well on what we have left and we can't get the pension. Screw it, lets buy the home we really want, get some toys, have a party until our capital falls to the level they will give us the full pension. Life is short and getting shorter after all. They end up on the public purse anyway... if you only have a small superfund this is the incentive in our system.




Julia said:


> Sure.  And what better reason could you have to educate yourself financially so as to be one of the winners, rather than a passive observer?
> (not using 'you' in the personal sense here, Mr Z.)




Sure, again smart individuals will and could duck this... if it turns out to be a real market dynamic.



Julia said:


> When you are assuming that the baby boomers are en masse going to exit the market, what do you have in mind that they will do?  Just take the lump sum and spend it?




Some might but that is not the important thing... once a market recognizes that a certain force is in play it tends to discount the new expected price level now. My concern is that it becomes a widely accepted idea that boomers are going to be a sustained selling force for a number of years. That would beget more selling & discounting which in turn puts more pressure on boomers trying to live of there fund now... it could become a vicious cycle if the imbalance is large enough.  We saw a similar effect in the GFC, people selling because they had no choice which in turn lead to more pressure and more selling. If it gets traction people will sell to protect what is left. So they will see a mark down in the funds value.

The idea is that if that balance is tipped it will be first out best dressed for a while. The question is will there be enough funds flowing into the market to balance things out and prevent us 'tipping' into a down cycle. The is a similar idea floating around the US where they actually have mandated redemption and therefore selling at certain ages. Like I have said maybe incoming OS capital flows will prevent this from happening, or even coming close BUT if we are at the mercy of the x's, y's etc I suspect they are just not saving and investing enough to counter the probable out flows. The market is zero sum, for you to take cash out someone has to put it in!



Julia said:


> Agree indeed that such a scenario would be a justifiable cause for social unhappiness, but I'm just not convinced it's going to happen like that.




Lets hope not... although I have already witness some intergenerational mud slinging, for now it was funny, I hope it stays at that level. It just seems to be a logical outgrowth of a crisis situation, *if* the whole thing actually gets of the rails. Its not a forecast!




Julia said:


> So, another reason for doing it yourself, rather than expose your funds to the so called professional fund managers.
> In today's paper, there's a small item about a suggestion from the Libs that they would issue infrastructure bonds, not government guaranteed, however, but with a 10% tax break attached, in anticipation that plenty of Super money would flow into these.  Obviously at this stage, this is going to absolutely be a choice, but I'd be getting pretty wary of more to come.




YES... a savvy SMSF can duck and weave should this become a reality, however unlikely we think it might be. It is a 'what if' exercise, never hurts to have plan B.



Julia said:


> Thanks for starting the thread, Mr Z.  Interesting discussion.




Its an interesting situation!  It is after all a largely unproven system and this will be its first real test. The boomers seem certain to stress our on the limit medical system are they a big enough group to stress the retirement system? Its a question... I

Cheers
Z


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## GeraldineLea (23 August 2010)

*Re: Super, does it have an Archilles heal?*



Mr Z said:


> The problem is that most boomers think a like and tend to invest in the same places and $456,000 is not enough to retire in comfort by a long shot. You will need to eat principle with that amount with todays returns and rising costs... especially as lifes little surprises hit. Nothing there actually gives me a lot of comfort. I wish it did




The cooper review shed new light onto the state of super in Australia but it also made me do my own investigating. I found that I can cut the trailing fees and commissions that I’m paying on my super fund….right now….by becoming apart of a financial cash-back service. What a lot of people don’t realise is that the cooper review will only correspond to new super funds, that is, funds that have been opened post July 2012. So I guess if people are interested in what the Cooper Review offers, perhaps they too should do their own research


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## Mr Z (23 August 2010)

I wonder if the Cooper review actually considered the demographic impact and the resulting dynamics of the market. So much of what passes for analysis is in reality so much linear projection... markets react! I wonder if these guys really know much of much about it. 

At least I know I am guessing!


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## Sir Osisofliver (26 August 2010)

I've been hesitant to post into this thread, my views on super are well-established on these boards. I loathe the current superannuation system. It is stupid and value destroying for the vast majority who use it. It's a federally orientated con-job of massive proportions that lets the industry sharks take bites from unsuspecting superannuants. Dealing with clients over the last two years who have been screwed time and time again has given me very little patience and the urge to smack politicians bums and send them to the naughty corner.

But there were a few things I wanted to point out to add some fuel to the fire of this interesting discussion.

1) There are two main forms of risk; Market (systemic) risk and unsystemic risk. You can substantially reduce unsystemic risk through diversification. *The only way to eliminate systemic risk is hedging.* There is no other mechanism to remove market risk. This is the risk that the Global Financial crisis comes along just before you retire and bends you over a barrel reaching for the KY. Now ask yourself the following questions and feel free to research the answer.....how many superannuation funds (Managed or otherwise) use hedging? Is your Self Managed Super Fund or managed fund even *capable* of investing into a hedging instrument?

The reason why I mention the above is that Julia says 







> And in a market downturn there should be more attention paid to capital protection. i.e. get out with profits largely intact when the market turns down, shop around for the best cash return, and buy back in when the market turns back up.




Now I'm not having a go at Julia - Capital Protection *is* vitally important, protecting the capital will protect the integrity and consistency of the cash flow, but properly hedging eliminates all downside risk and makes this activity of selling and re-buying largely redundant, saving you transaction costs, timing errors and ensuring that you do not lose your *cost-based yield*. This is of course only relevent for buy and hold portfolio's, not trading portfolio's - which have the ability to short and make money out of the downside risk.

2) Mr Z said this 







> The boomers are a large part of our workforce and as a group hold the highest dollar value invested in most all investment areas, one of them being super. As they collectively get to the point that they are no longer putting into super and start drawing down on super we will experience significant selling pressure in the areas that most of their super in invested. The only way this can be held static is if the funds flowing into the market more than meet the redemptions. Given the demographics of the following generations I can't see that this is likely.




Mr Z I'd like you to consider the following. When you do courses in Funds Management one of the things that is taught is that you need to examine the demographics behind the investors in your fund for this very reason. If you anticipate through modelling that your fund will require X dollars of withdrawals in a 12 month, 24 month, 36 month etc period you will of course ensure that the funds are available for this drawdown* so you don't have to sell anything before you are ready to meet the draw-down*. Most funds do not buy assets and hold them indefinately (there are no tax advantages for them to do so), so they will retain funds for redemption purposes if they require them. How will the demographic issue you describe influence this process? Less funds will be used for Re-investment back into the market. Will less funds cause the supply demand demographics to change? Yes. By a lot.... I'd have to say no.

When we invest in the share market (or your superannuation fund does so on your behalf), would it be fair to say that what you are investing in is a small part of the GDP of the country? If our GDP is growing, our economy is growing. The technical definition of a recession is two negative periods of GDP growth. To cause your Achilles heel not only would you need to have the supply and demand dynamics significantly altered in the share market, but you'd also have to ensure that the demographic change resulted in a change into a sustained *negative* GDP.

Are the forthcoming demographics you describe likely to cause such an event? I dont think so. There are several articles you can yawn your way through over at the treasury department if you want to read more.

Cheers

Sir O


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## Julia (26 August 2010)

Hello Sir O, good point about the hedging, of course.  Some of us are probably just a bit lazy about doing this when the uber-simple approach is achieving what we need.  

Re your distaste for Super in general what alternatives do you think would work to ensure people can fund their own retirement? Australians seem on the whole to be very poor savers, so isn't some sort of compulsory scheme necessary?


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## Sir Osisofliver (27 August 2010)

Julia said:


> Hello Sir O, good point about the hedging, of course.  Some of us are probably just a bit lazy about doing this when the uber-simple approach is achieving what we need.
> 
> Re your distaste for Super in general what alternatives do you think would work to ensure people can fund their own retirement? Australians seem on the whole to be very poor savers, so isn't some sort of compulsory scheme necessary?




We've sort of chatted about about this previously Julia.  All the tax advantages in the world don't make the current superannuation system attractive enough IMO to make up for the disadvantages.  The biggest disadvantage is one of control and the second is one of leverage.  You can partly address the first issue with the use of a SMSF, but there are still significant control measures placed over the scheme that still makes it unattractive. The second issue (whilst there is some limited scope for the use of leverage) uses derivative structures; one of the most risky investment instruments and one of the most difficult instruments to reduce risk in. To reduce risk within this type of instrument we must look at fairly complex risk management techniques, beyond the capacity of the average investor, rather than a simple loan arrangement with risk management reserves.

As for Australians being poor savers...of course we are poor savers...it's a mugs game with our current taxation system to put money into a bank because our real rate of return barely covers inflation. If you're in the highest tax bracket, you frequently go backwards, so in that circumstance youare much better off using your cash flow to reduce debt. (Ken Henry tried to address this point in his Tax review to bring tax deductibility of fixed Interest in line with other investment classes).

In terms of should there be a compulsory type of scheme.....IMO only one that would allow you to appropriately leverage, and truly control what is *your money* would be acceptable. Without these two things I will continue to do what I'm doing.

Cheers

Sir O


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## Julia (27 August 2010)

OK, but that's just the point of view of the individual.  What governments have to be concerned about is the number of people accessing the age pension because they've failed to provide for themselves.  That's going to require a higher level of taxation.


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## Sir Osisofliver (30 August 2010)

Julia said:


> OK, but that's just the point of view of the individual.  What governments have to be concerned about is the number of people accessing the age pension because they've failed to provide for themselves.  That's going to require a higher level of taxation.




With the current kind of Nanny state thinking in the guvmint I don't disagree. It's a very linear and short-term approach to raise the superannuation contribution level for example.

You can then proudly forecast how much more funds will be put aside and how much better off the Australian people are in what sounds good in a soundbite. As a politician you'd be making a difference, unfortunately I'm of the opinion that this does not work. 

To me the only thing that will work long-term is a system where the majority of people have some basic education in financial matters (Which I can't see happening as it's not a short term solution and isn't as tangible an improvement so no politician gets to take credit). Currently only those who give a damn become educated in these matters and people who cannot afford to educate themselves are stuck repeating the same behaviours and never going forwards.

Currently we have the aged pension means tested. Financial education could considerably alter the dynamic of those that _require_ a pension placing a smaller taxation burden on the rest of us. 

Regards

Sir O


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## Julia (30 August 2010)

Sir Osisofliver said:


> To me the only thing that will work long-term is a system where the majority of people have some basic education in financial matters (Which I can't see happening as it's not a short term solution and isn't as tangible an improvement so no politician gets to take credit).



And even if you were to offer this basic financial education, I reckon way less than half those compulsorily required to access this would do anything with it.

I'm just constantly blown away by the number of intelligent people, successful in their own fields, mostly tertiary educated, who refuse to educate themselves financially, but rather year on year bemoan how "Super has failed them".

So, given that level of apathy, I can't see that governments have any option than to continue with compulsory contributions to super.  I'm damned if I want to be funding any more than is necessary those people who prefer to spend their earnings rather than make provision for their own retirement.


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## nioka (30 August 2010)

Sir Osisofliver said:


> To me the only thing that will work long-term is a system where the majority of people have some basic education in financial matters.Sir O




It used to happen. As kids we had a savings account with the Com Bank. At school we had a book that had slots for pennies and each Monday we took a penny to school and had it placed in our book. When the page was full the money went to the bank and we had the amount added to our savings book. The motto was "look after the pennies and the pounds would look after themselves". Then there was the tin money box where it couldnt be opened without a tin opener.

Education continued after school. Later on to buy a bike you paid so muchdown and so much each week but the bike stayed at the shop until you had paid it off. Later on if you wanted to buy a car you could only get hire purchase credit if you could pay 33% deposit on a new car or 45% deposit on a second hand one.

Easy credit and buy now pay later plus governments running the mother of all pryamid schemes (legally and calling it growth) is the problem.


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## Sir Osisofliver (1 September 2010)

Julia said:


> And even if you were to offer this basic financial education, I reckon way less than half those compulsorily required to access this would do anything with it.
> 
> I'm just constantly blown away by the number of intelligent people, successful in their own fields, mostly tertiary educated, who refuse to educate themselves financially, but rather year on year bemoan how "Super has failed them".
> 
> So, given that level of apathy, I can't see that governments have any option than to continue with compulsory contributions to super.  I'm damned if I want to be funding any more than is necessary those people who prefer to spend their earnings rather than make provision for their own retirement.




So how do you combat apathy?

At one stage people were apathetic about smokers. I still remember ashtrays on desks in the workplace. It's not been a quick process to get policy in place in relation to smokers. I think it was just last year that they brought in a fine in QLD if you smoke in your car with children present??

Same approach - you have to change the perception - sure *you* think the people you mention are dunderheads, but you are currently in a non vocal minority. Sure we will still get smokers despite all the public awareness campaigns that it is bad for you m'kay, just as you will still get people who stick their heads in the sand about their future financial needs.

*Shrugs* still think it would better than what we have now.

@ Nioka - Perhaps a _little_ more complicated than that 


Sir O


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## awg (1 September 2010)

Hi Sir O,

Enjoy your contributions to this thread.

I would be interested in your opinion (and others) regarding what I classify as "legislative risk".

By this I mean taxation, preservation and any other factors influenced by changing government legislation, changing demographics, with a medium term view.

I probably should read the Henry report , but what do you think is the likelyhood of change in tax regime, especially pensions?

Are any mooted?


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## doctorj (1 September 2010)

For me, legislative risk with respect to pensions comes in 3 main forms:
(i) There are many examples from all over the world of governments supplementing their balance sheet by acquiring their population's pension assets in times of economic crisis. When this happens, people lose their individual account with the right to select investments and will get much lower returns. Argentina is good example of that, but similar things have been done more recently on a smaller scale under the guise of pension reform, in Turkey for example
(ii) Unfavourable demographics mean governments will push the retirement age back (meaning, when you can get your money). For example, In Russia, the retirement age will soon exceed life expectancy for men. Similar is happening all over the world as populations age and pension deficits grow - it's the easiest way to fill the whole 
(iii) The government can dictate what you can invest in. Today, it's a bit of an inconvenience as you lose some flexibility, but similar to (i), it can, and does, get a whole lot worse. Governments elsewhere mandate a minimum exposure to government bonds to meet their funding gaps

The other concern with a scheme like Australia's is you end up with too much money chasing too few assets, driving up asset prices and reducing returns. In Australia, the capital markets are quite well developed, meaning it takes longer to get to the tipping point, but you see in countries like Kazakstan with fewer instruments, they got to this point virtually on day 2 of their mandatory superannuation. The future will be lower returns, more overseas investment and greater use of derivatives, such as currency swaps to manage fx risk.


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## basilio (6 September 2010)

Just got my super statement today. All the figures . What it's all worth.

One striking feature however was a table which looked at the 5 and 10 year earning rates for the various investment options. Cash, Balanced, Growth, Equity Growth etc.

Guess what ?  There were 7 investment options and the best performer over 5 years. at 4.86% return  -- was Cash.  Growth was 2.51%, Equity Growth 2.18% Balanced  3.38%, Capital Stable 3.87%.

Okay so we have had a couple of bad years so this could be expected.

*But when you look at the 10 year earning rate  the figures barely change.*

Cash returned 4.73% Balanced was 4.13% Growth 3.48% Equity Growth 2.44%. The best result was Capital Secure option which showed 5.08% - but this only started in 2003 so it wasn't a truly comparable comparison.

And of course these are raw figures.  After allowing for inflation I suspect the real return for super holders would be almost negative.

*The nuts of the matter is that over the last 10 years the cash option clearly outperformed  all the investment options in Vic Super.  I suspect that there would be little substantial difference in other super funds if anyone else can offer  some figures.*

Sobering set of figures when considering how much of our investment is tied up in super.  And of course in almost all funds the management fees are consistent and remorseless.


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## robots (6 September 2010)

Hello,

yes amazing  Basilio, 

and these guys who "manage" the $ come to this country and people carry on like they are gods, post there newsletters up in bloggosphere

thankyou
professor robots


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## Julia (6 September 2010)

basilio said:


> Just got my super statement today. All the figures . What it's all worth.
> 
> One striking feature however was a table which looked at the 5 and 10 year earning rates for the various investment options. Cash, Balanced, Growth, Equity Growth etc.
> 
> ...



Basilio, that's just unbelievable!  Shameful, especially considering we had a strong bull market for several years during that time period.

I simply don't understand why anyone would put up with this.  Can't you start your own fund?  Or surely there are some commercial funds which are performing better than this?  That cash should be the best performance is quite ridiculous.


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## basilio (11 September 2010)

There is an excellent analysis of what seems to be happening with the world's economic system as a consequence of the  15 debt binge.  The author suggests that the promotion of shares as the best long term  value for investors might not be true.



> *Any port in a storm after bursting of the bubble*
> Stuart Washington
> September 11, 2010
> 
> ...




http://www.theage.com.au/business/a...er-bursting-of-the-bubble-20100910-15528.html


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## burglar (11 March 2011)

Julia said:


> Hello Sir O, good point about the hedging, of course.  Some of us are probably just a bit lazy about doing this when the uber-simple approach is achieving what we need.
> 
> Re your distaste for Super in general what alternatives do you think would work to ensure people can fund their own retirement? Australians seem on the whole to be very poor savers, so isn't some sort of compulsory scheme necessary?




The compulsory scheme that is necessary, is to educate australian children in Financial Independence.
My parents did not do this at home.
My teachers did not do this at school.
(especially the nuns in Primary School, wasting 30 minutes a day on "Religious Instructions")


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