Why didn’t I get my personal financial ‘stuff’ sorted earlier?

Much has been said lately about the rising cost of living, with age pensioners demanding a rise in their age pension to cover basic necessities such as rent and food.

It is often said that a measure of the wealth of a society is how it looks after its poorer demographic. The expectations of the next wave of retirees are changing.

The current crop of retirees born between 1925 and 1940 are used to living within their means, are conservative, disciplined in their investing and saving and readily take advice from their planners and advisers.

The next generation of baby boomers are the exact opposite, they are optimistic, many have accumulated wealth in investment booms such as housing, have been empowered by choice and are comfortable with risk. Overspending and impatience is a problem and major issue that needs to be managed.

Gazing into the crystal ball (based on current expectations) future generations X and Y are even worse than our current crop of baby boomers with regard to their future spending expectations.

Show me the (age pension) money – please!

The age pension makes up a third of the annual Federal Budget and is set to increase at double the inflation rate to reach $45 billion in four years.

Future governments will look to scale down this commitment as the number of future taxpayers declines.

It is clearly obvious that managing this expectation gap of future retirees is an understatement. With rising inflation and living costs and fundamental changes such as a reaching “peak oil” and the question of who knows whether the age pension will be around in 10 to 20 years from now, only add to challenges in managing the expectation of these future retirees.

The 9% superannuation guarantee and choice of super funds legislation has been the Government’s answer to empower the public to take responsibility of their own retirement funding.

Okay, so what do I do about my massive future retirement expectations?

From a financial planner’s perspective, the Age Pension is deliberately set at a fourth of the average annual weekly wage to encourage (well, force is really a better word) people to ‘plan adequately in advance’ for themselves, to manage their expectations of their own future retirement funding.

This message of “self-assessing your future retirement funding” is far more important for small business owners to take on board, as they are more likely the ones to neglect to manage their personal finances, often too busy putting everything into their businesses to ensure their ‘baby’ prospers and succeeds, and so they should – it’s tough out there.

It’s a rather ironic situation though as the greatest number of personal wealth accumulation and tax advantage strategies are available to SMEs rather than the ordinary wage and salary earner.

It’s much more than just budgeting, scrimping and saving and getting the right interest rate for your loans. It’s the big picture stuff.

The ‘real’ lifetime of difference

The Financial Planning Association conducted an actuarial study in February 2008, on the value of advice from a financial planner. With over eight different case studies with clients differing situations and found that they collectively accumulated an extra $1.7 million dollars over a lifetime by acting on the advice from a smart adviser early rather than at the last minute. Even on the most basic of advice that would have been missed.

Now that’s A LIFETIME OF DIFFERENCE (industry fund dig intended).

This does not take into account the ‘smart’ advisers out there who deal in direct asset buying for their clients with even better return performance over the long run.

It is most important to begin EARLY not just before you decide to retire – it’s far too late then.

To borrow an investment analogy from the world’s greatest investor “…the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.” – Warren Buffett, The New York Times, October 17, 2008.

Don’t wait for the robins.

Managing the future expectation of retirees will undoubtedly be a challenge for future governments, further, rising costs of living from our current unaffordable housing market due to a lack of supply in developed lots and rising food input costs will continue to exacerbate this challenge.

The future remains uncertain but in the right hands a manageable one.

The views and opinions expressed within this letter are those of the author and do not necessarily reflect those of Millennium3 Financial Services Pty Ltd.

The above is general in nature and should not be acted upon without seeking the advice of a professional licensed financial planner.