# Baby Boomers Are Retiring



## Michael Cornips (28 January 2011)

CourierMail - 23rd January 2011: A LOOMING surge in baby boomer retirees may force superannuation funds to freeze assets and ban withdrawals unless minimum contributions rise from 9 to 15 per cent of wages and salaries. Link

There has been some press coverage that suggests that our Superannuation pool of savings will be run down due to the increasing number of Baby Boomers retiring who need to spend their savings to live.

I tried to examine the logic of this concept, other than an Industry wishing to pressure a Government to increase the size of the Industry.

By sourcing data from the Australian Bureau of Statistics, I have been able to draw some analysis to get a clearing view of changes in population groups. The chart below gives you an idea of the fear of a proportional increase in retirees:







Over the next decade, in % growth terms, there is a disproportionate number of people entering retirement age. Statistics will do that.






The growth in people aged 65 + is the green line. In 2011, the increase in number of people 65 + is 93,000. But the increase in people aged 20 to 65 is 223,000. You would think that the additional savers would more than offset the people drawing down funds in retirement. There doesn't seem to be a cash-flow issue today, as the media might suggest. I am not saying that 15% superannuation is a bad idea, but threatening fund redemptions unless an increase is made seems disingenuous.

Longer term trends do indicate that the proportion of people aged 20 to 65 declines over time. The absolute number continually increases, but as a proportion of the total population the long-term trend is down.






The problem is more what the political attitude is to long term social welfare and how the country generates and allocates resources.

Michael Cornips


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## sinner (28 January 2011)

Michael Cornips said:


> threatening fund redemptions unless an increase is made seems disingenuous.
> 
> Michael Cornips




Hi Michael,

Great post. Thanks for covering this phenomenon which is occurring in many countries from the Aussie perspective.

re the quote above, disingenuous based on the assumption that everything is fine within Superland.

My guess is promises of growth and returns have been made _en masse_ and that without a return to the levels of growth seen pre-GFC the Superannuation ponzi will be exposed for what it is.

From the courier article you linked:


> Brian Haratsis, chief executive of Macroplan Australia, says unless more money is pumped into the system by current workers, many funds may not have enough liquid assets to meet redemptions, forcing them to shut up shop.




Gee...sounds familiar doesn't it?




Probably in the case of Super, you could replace "rounds" of investors, with generations of Australians.

Obviously SMSF is the solution, both to avoid ponzi type funds and to avoid being locked out of your money when you need it.


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## IFocus (28 January 2011)

Michael Cornips said:


> CourierMail - 23rd January 2011: A LOOMING surge in baby boomer retirees may force superannuation funds to freeze assets and ban withdrawals unless minimum contributions rise from 9 to 15 per cent of wages and salaries. Link
> 
> There has been some press coverage that suggests that our Superannuation pool of savings will be run down due to the increasing number of Baby Boomers retiring who need to spend their savings to live.
> 
> ...




From the comments about the article



> steve of logan  Posted at 10:38 AM January 23, 2011
> 
> More pressure from the super funds to increase their income and power from superannuation. What Haratsis is really saying is that the funds cannot allow thier investment portfolio to shrink in line with increased withdrawals in 15 years - because then they will lose income stream proportionally. Self Interest. Pure and Simple.
> 
> Comment 6 of 14






> Tommie of Brisbane  Posted at 8:32 PM January 23, 2011
> 
> I don't quite understand this. I thought you get what you paid into your own super account, plus any investment earnings. You already paid 15% contributions tax every time your employer made a contribution on your behalf. So why is there not enough to pay out to anyone at any given time? If 10,000 people want to access their super tomorrow, all there is to do is sell their respective shares and give them what belongs to them. Did I miss anything?
> 
> Comment 12 of 14


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## nukz (28 January 2011)

Great post and topic, this is something that will really put huge pressure on country's all over the world. 

This in my opinion could be the killer for China as the one-child policy has made it almost impossible for taxes to support retiring baby boomers. 

As far as Australia goes, here's a question. When the baby boomers all decide they want to fully retire and start to off-load on mass their investment property's.


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## Ruby (28 January 2011)

I just wonder if there is a bit of scaremongering here?   I am no economist and would not presume to argue with any of the mathematics presented, but there are a few more factors to be taken into account with the Baby Boomer age group.

Many baby boomers (and I am one) have very little superannuation.  This is a fact.  There was no compulsory super until most of them were more than half-way through their working lives, so unless you worked for the public service you probably didn't have any.  Even public servants were not all eligible (I think that is correct) or maybe it was not compulsory then - not really sure.  I remember discussions between my parents when I was a teenager about whether they could 'afford' to have super.  Don't recall details.

A lot of women in that generation did not work while they were rearing children, and even though they went back into the work force in droves in 1980's, they had lost a lot of super-earning-time.  Some of these women didn't ever return to the work force, so one super fund (husband's) has to support two people.

Just thought I would throw that into the pot.


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## tothemax6 (28 January 2011)

Michael Cornips said:


> CourierMail - 23rd January 2011: A LOOMING surge in baby boomer retirees may force superannuation funds to freeze assets and ban withdrawals unless minimum contributions rise from 9 to 15 per cent of wages and salaries.



This doesn't even make sense. As far as I know, a superannuation fund is a fund. They take _your_ money and invest it, and this investment is _your_ investment. You may then redeem at some point, and to meet redemptions the fund sells the investment assets. All that could happen if retirement rates increase, is some downward pressure on the markets as asset sale rates increase.

This is not a pension/social-security system, this post makes it look like a ponzi scheme.


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## sinner (28 January 2011)

tothemax6 said:


> This doesn't even make sense. As far as I know, a superannuation fund is a fund. They take _your_ money and invest it, and this investment is _your_ investment.




Yes correct, assuming everything is 100% above board then it's all good, right?


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## tech/a (28 January 2011)

> When the baby boomers all decide they want to fully retire and start to off-load on mass their investment property's.




Why would we do that?
They supply passive income because Thats why we bought them and we pretty well own them.
And they hedge us from inflation.
Why on earth would we want cash which is eroded by inflation!!


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## IFocus (28 January 2011)

tothemax6 said:


> This doesn't even make sense. As far as I know, a superannuation fund is a fund. They take _your_ money and invest it, and this investment is _your_ investment. You may then redeem at some point, and to meet redemptions the fund sells the investment assets. All that could happen if retirement rates increase, is some downward pressure on the markets as asset sale rates increase.
> 
> This is not a pension/social-security system, this post makes it look like a ponzi scheme.




Thought the same but there was the......link......at the bottom........try google the names



> The defendants included Giann & Giann Pty Ltd, which traded as Break Free Events (BFE), its director Mr Jon Giannopoulos, CTC Professional Services Pty Ltd (CTC), its director* Mr Carlo Castellano* and JTLP Group Pty Ltd (JTLP Group).





http://www.asic.gov.au/fido/fido.ns...trains+wealth+creation+spruikers?openDocument



> The Federal Court has accepted undertakings from five parties that stop alleged misleading and deceptive claims being made during the promotion and provision of option trading seminars. These undertakings were given to the Court as a result of an application by the Australian Securities and Investments Commission (ASIC).
> 
> The five parties include Giann & Giann Pty Ltd, trading as Break Free Events (Break Free Events), and its director, Mr Jon Giannopoulos, and CTC Professional Services Pty Ltd and its director, *Mr Carlo Castellano.*




http://www.asic.gov.au/asic/asic.ns...+against+option+trading+seminars?openDocument


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## nukz (28 January 2011)

tech/a said:


> Why would we do that?
> They supply passive income because Thats why we bought them and we pretty well own them.
> And they hedge us from inflation.
> Why on earth would we want cash which is eroded by inflation!!




But doesn't there come a time when you want to cash out and just 'enjoy' yourself with those around the world cruises ect. 

or am i wrong and baby boomers just want to 'survive' lol


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## c-unit (28 January 2011)

nukz said:


> But doesn't there come a time when you want to cash out and just 'enjoy' yourself with those around the world cruises ect.
> 
> or am i wrong and baby boomers just want to 'survive' lol




Yeah I don't get that either. When I retire (~2050) I'm buying a Columbian villa, a yacht and a briefcase of blow, Charlie Sheen style!


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## c-unit (28 January 2011)

Back to that article...I always thought super funds were just that, a fund that manages _your_ money and you withdraw _your_ when the time comes. That is, your ending balance = beginning balance plus cumulative earnings less cumulative fees. 

If it's the ponzi scheme like that article suggests, and is relying on new contributions to pay out existing members, where is all the money going?


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## Garpal Gumnut (28 January 2011)

Retiring is for 

Folk who are sick
Folk who don't enjoy their job
Folk who don't like working
Folk who are too tired to work
Folk who've never worked

I cannot see myself ever retiring, but I'm sure as hell going to spend all my super before I die.

gg


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## Tysonboss1 (28 January 2011)

c-unit said:


> Back to that article...I always thought super funds were just that, a fund that manages _your_ money and you withdraw _your_ when the time comes. That is, your ending balance = beginning balance plus cumulative earnings less cumulative fees.




yes that is right, as mentioned above the only thing that would get people introuble was if they all started selling at once and caused a crash, So what were $500K balances were suddenly $100K.

Thats unlikly though, I mean,

baby boomers aren't going to all retire at once, Especially if there arer incentives to keep working which there will be both organic incentives such as higher wages in a labour constrained workforce and goverment incentives, tax free contributions to super after 65.

Also a large portion of people close to retirement are probably already slowing switching to higher portions of cash and fixed interst in the portfolio.

As mentioned the first wave of baby boomers to retire don't have overly much super any way.

The growth in china's foreign investment is set to boom over the next 10 years, So the increased sell off of shares from super accounts will be offset by increased purchases from a richer chinese population seeking to diversify internationally


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## sinner (29 January 2011)

Tysonboss1 said:


> yes that is right, as mentioned above the only thing that would get people introuble was if they all started selling at once and caused a crash, So what were $500K balances were suddenly $100K.
> 
> Thats unlikly though, I mean,
> 
> baby boomers aren't going to all retire at once, Especially if there arer incentives to keep working which there will be both organic incentives such as higher wages in a labour constrained workforce and goverment incentives, tax free contributions to super after 65.




Strong global demographic trend. Western Europe, Japan and USA all in the same boat. Maybe even China!

http://findarticles.com/p/articles/mi_m1094/is_4_40/ai_n15969911/


> authors point out, by 2040, assuming current demographic trends continue, there will be 397 million Chinese citizens who are in the 60 and older age cohort, more than the total current populations of France, Germany, Italy, Japan, and the United Kingdom, combined.
> 
> A number of authors have commented on the Chinese demographic transition as it relates to pension policy. The CSIS study, for example, points out that without pension reform, China will "soon have tens of millions of indigent elders who lack nearby families, pensions, and access to health care"




Nobody is cashing out all at once, rather it will be a decades long cashing out and the investment flow will almost certainly reverse the prior decades long bull market built on the boomers productivity.



> Also a large portion of people close to retirement are probably already slowing switching to higher portions of cash and fixed interst in the portfolio.




Yep, that is a huge trend which is just reversing, just look at Japanese Govt Bonds once the shift from saver to spender began!



> As mentioned the first wave of baby boomers to retire don't have overly much super any way.
> 
> The growth in china's foreign investment is set to boom over the next 10 years, So the increased sell off of shares from super accounts will be offset by increased purchases from a richer chinese population seeking to diversify internationally




Everything is just hunky dory.


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## Bill M (29 January 2011)

tothemax6 said:


> This doesn't even make sense. As far as I know, a superannuation fund is a fund. They take _your_ money and invest it, and this investment is _your_ investment. You may then redeem at some point, and to meet redemptions the fund sells the investment assets. All that could happen if retirement rates increase, is some downward pressure on the markets as asset sale rates increase.




Yes that's the way most of the funds are suppose to operate but then there are the old style State and Federal Government Funds that are just not funded and they simply don't have the money to meet the withdrawals.

There are schemes called defined benefit schemes, I am in one of them. All I had to do when I was paying in was deposit enough of my own salary to make an average of 6 points. Bare with me, the 6 points is irrelevant right now other than to say I contributed to the maximum. What that meant was that I was going to get an "employer sponsored benefit" to I think 3 times my final salary. So where is that sponsored benefit going to come from when people start withdrawing? The government and probably tax payers? Is this right or fair? No way but don't forget the toilet cleaners on the NSW state governments payroll was on this too and they paid into this fund in good faith as part of their employment contract. We all deserve the payout as we all paid into the scheme at the time.

Those funds were government ill conceived schemes that will end up costing  the states or country big time when people start withdrawing. Most have now been closed off but those that are still paying into these schermes will eventually need to be paid out. Note following story.

---
_*The burden to taxpayers from funding the generous superannuation scheme provided to the state's public servants has blown out by as much as $7 billion since the middle of the year, figures released yesterday show.

The unfunded superannuation liability rose to $34.5 billion as of June, due partly to concerns that future returns on funds invested will be lower than anticipated, which has boosted the additional amount taxpayers will need to inject into the schemes*._

---

Link to full story here


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## Tysonboss1 (29 January 2011)

Bill M said:


> Yes that's the way most of the funds are suppose to operate but then there are the old style State and Federal Government Funds that are just not funded and they simply don't have the money to meet the withdrawals.
> 
> There are schemes called defined benefit schemes, I am in one of them. All I had to do when I was paying in was deposit enough of my own salary to make an average of 6 points. Bare with me, the 6 points is irrelevant right now other than to say I contributed to the maximum. What that meant was that I was going to get an "employer sponsored benefit" to I think 3 times my final salary. So where is that sponsored benefit going to come from when people start withdrawing? The government and probably tax payers? Is this right or fair? No way but don't forget the toilet cleaners on the NSW state governments payroll was on this too and they paid into this fund in good faith as part of their employment contract. We all deserve the payout as we all paid into the scheme at the time.
> 
> ...




with defined benefit plans, what happens if you die.

Does the spouse still recieve payments,


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## Garpal Gumnut (29 January 2011)

Bill M said:


> Yes that's the way most of the funds are suppose to operate but then there are the old style State and Federal Government Funds that are just not funded and they simply don't have the money to meet the withdrawals.
> 
> There are schemes called defined benefit schemes, I am in one of them. All I had to do when I was paying in was deposit enough of my own salary to make an average of 6 points. Bare with me, the 6 points is irrelevant right now other than to say I contributed to the maximum. What that meant was that I was going to get an "employer sponsored benefit" to I think 3 times my final salary. So where is that sponsored benefit going to come from when people start withdrawing? The government and probably tax payers? Is this right or fair? No way but don't forget the toilet cleaners on the NSW state governments payroll was on this too and they paid into this fund in good faith as part of their employment contract. We all deserve the payout as we all paid into the scheme at the time.
> 
> ...




Bill, I hate to disillusion you, but when the Irish economy tanked, the first thing they did was to decrease the payout from funds like this. 

It could happen here. 

Until you actually have the $ in your hands it is not yours unfortunately.

gg


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## Julia (29 January 2011)

Always when this topic is discussed the assumption seems to be made that everyone reaching retirement is going to withdraw the entire amount of their Super and go off and spend it.  Why such an assumption?

Why wouldn't the retirees be equally as likely to simply convert their Super into Pension Phase and leave it invested to provide ongoing income?

I just don't believe most retirees are so improvident that they will withdraw the lump sum and blow it in a year.

Or if they don't intend to spend it in an extravagant gesture, aren't they likely to be as apathetic about what happens to the funds in retirement as they have been during the years of contribution?

Excluded from the above are people with SMSF's who will not be at risk of woeful returns from the public super funds.


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## RandR (30 January 2011)

Julia said:


> Always when this topic is discussed the assumption seems to be made that everyone reaching retirement is going to withdraw the entire amount of their Super and go off and spend it.  Why such an assumption?
> 
> Why wouldn't the retirees be equally as likely to simply convert their Super into Pension Phase and leave it invested to provide ongoing income?
> 
> ...




I agree that the assumption seems absurd. But forgive me for saying this, to my mind alot of baby boomers are quite err, old fashioned  I think the majority upon retirement would be quite keen to withdraw there managed super in a lump and manage the funds themselves simply by depositing it in a bank cash account.

They dont have to withdraw it and blow it for it there to be a problem, merely withdraw it from the managed fund.

Correct me if im wrong, but he only real issue raised is liquidity, if the super fund maintains a level of liquidity in its holdings to easily divest any withdrawals there is no real problem. The problem only lies where a super fund is considerably illiquid.

Everyone in the country knows the baby boomers are slated to start retiring en masse from 2012 onwards, surely the super funds are more then aware of there needs in relation to this, and are capable of planning accordingly, without requiring any sort of government or regulation intervention.


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## Bill M (30 January 2011)

Tysonboss1 said:


> with defined benefit plans, what happens if you die.
> 
> Does the spouse still recieve payments,




I had to do a read up on the facts sheet. The answer is yes, it is passed on to your spouse. I also checked the employer sponsored part of the deal, it is in fact 2 and a half times final salary not 3 as I stated before.

Virtually all employees who were employed by the NSW state Government prior to 1993 when this fund was closed off to new entrants are still paying into these funds. That amounts to 10's of thousands of people.

---

_It is one of the largest superannuation schemes in Australia, managing more than 136,022 accounts and more than $30 billion in assets at 30 June 2010_

---

Link to the Facts Sheet


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## Bill M (30 January 2011)

Garpal Gumnut said:


> Bill, I hate to disillusion you, but when the Irish economy tanked, the first thing they did was to decrease the payout from funds like this.
> 
> It could happen here.
> 
> ...



There would be blood on the streets if this happened. People are pouring as much of their salary into these funds right now preparing for retirement. In NSW alone there are 136,000 paying into these funds and to change the rules now after a lifetime of contributions is just not right and unfair. It will be the end of any government willing to bring it on. The cops, firemen, bus drivers, cleaners, ferry workers, nurses etc are still being encouraged to pay into these schemes. We are talking normal Joe Blows on less than average salaries. But I do get your point, nothing is in the bag until it is there in front of you.

Why don't these b@stards in Government bring their own over generous super schemes into line with mainstream Australians super? That will never happen will it.


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## doctorj (30 January 2011)

Garpal Gumnut said:


> Bill, I hate to disillusion you, but when the Irish economy tanked, the first thing they did was to decrease the payout from funds like this.
> 
> It could happen here.
> 
> ...



Same can be said of the defined contribution plans.  When governments around the world hits a bit of a rough patch, the temptation to transfer the funds back to the state can become too much.  Hungary (might sound like a dodgy eastern European place, but it's European Union...) did just this in the last couple of months.


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## Julia (30 January 2011)

Isn't all this speculation (dare I say fear mongering) based on a wrong premise?
It seems that once again "Super" is being regarded as an investment in itself, rather than simply a tax advantaged vehicle in which to hold assets.

If the public super funds hold employee contributions in, say, Australian shares, and cash,  then if someone wants to withdraw what they have contributed, surely the super fund just has to sell whatever number of shares is appropriate plus the proportion in cash etc to give the retiree their share?

The worst that could happen would be a significant fall in the SP of the companies concerned, simply offering an opportunity for those who will jump at the chance to buy good companies in a dip.

But if you're worried, then set up your own SMSF and take charge of your own money.


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