Preparing for your retirement wasn’t supposed to be difficult. The government had it all sorted for you.
The ATO made sure you saved and invested a certain proportion of your income into Super each year. The Treasurer managed the economy to make sure the stock market always goes up. The Reserve Bank of Australia made sure the cost of living didn’t get out of hand. The FRB and ACCC protected your investments from too much and too little competition. APRA and ASIC made sure you don’t get defrauded. And there’s always the pension.
Unless you’re deeply sceptical of anything the government does, the chances of all those institutions getting it wrong may seem very low. But they have got it wrong. Terribly wrong.
Because Australians overinvested in shares via their Superannuation accounts, a HSBC report reached the conclusion that our retirement savings system was the world’s worst performer during the financial crisis. And our stock market still hasn’t recovered.
True, we haven’t had a recession in more than twenty years. But that also means we have a lot of very fragile and untested parts of the economy. It’s just like the difference between brush fires and bush fires – if you don’t clear the tinder with occasional burn offs, look out! Once we do have a recession, it will be worse. And most Australians won’t be prepared.
But the biggest risk Aussie retirees have discovered is the complete lack of accountability and oversight in the financial sector. In The Money for Life Letter I’ve exposed how up to 20% of Australian mortgages could be induced by fraud, leaving homeowners homeless and in debt.
The country’s mortgage debenture industry is going insolvent one mismanaged company after the other, destroying life savings in rural communities. The alleged misbehaviour of several Commonwealth Bank financial advisors was recently exposed. And Australia’s regulators are a laughing stock to those in the industry.
With friends like these handling your money, who needs enemies?
Back in 2008 I completed an internship at a prestigious investment bank which gave me a scholarship to university. I saw what the financial world is like from the inside while the façade of respectability was ripped off by a financial crisis. And I didn’t like it. But I decided I would learn the trade from the best and then set my own course in the investment world.
That’s when I got a text message from Port Phillip publisher Dan Denning. I’d met him once before. ‘Want to move to Melbourne?’ was all it said.
Today, four years later, I write The Money for Life Letter. It allows me to do what I wanted back when I was at the investment bank: Tell ordinary people that there is an alternative to the retirement system that has failed them.
That alternative starts with a change of mindset. Don’t just fiddle with which shares you own, how you structure your Super, or which financial advisor you see. Those changes won’t rescue your retirement. They’re like changing which political party you vote for. Has voting ever solved any of your personal problems? It’s a distraction. Instead, you need to make much deeper changes yourself.
Opt out of the idea that the stock market and property market always go up. Opt out of the idea that your financial advisor and broker have your interests at heart. Opt out of the ‘she’ll be right’ retirement mentality.
You need something different. And in The Money for Life Letter, you can find it. This year I showed my readers…
- How to ‘crash-proof’ your retirement. Imagine being able to survive five years like 2008 unscathed. I can show you how, using a new ASX listed investment in a very particular way.
- How to get three of Australia’s biggest and safest companies to pay for every day of your retirement, including annual payouts of whatever sum you decide to invest in them now.
- Live the luxurious life of a millionaire without having to spend money like one, by retiring overseas. I shortlisted and analysed five retirement boltholes best suited to Australian retirees looking to escape the world’s highest cost of living.
- Be healthier, stronger and more active in your golden years, and save a potential $220,000 in medical costs by taking one $149 test from the comfort of your own home. (I revealed my own embarrassing results too.)
- How to turn one of retirement’s most important expenses into a profit using time travel.
There are a few things those ideas have in common. They won’t make your broker or financial advisor a penny wealthier (which is why you won’t hear about those ideas from them). They don’t rely on financial market prices going up. And they can make a much bigger difference to your retirement than any advice you’ll get elsewhere.
Because of the financial crisis, some retirees are fed up. They’re taking note of ideas like those in The Money for Life Letter. But you might be thinking it’s too late. The crash has happened. There’s no point in making changes now.
But the financial crisis of 2008 was just a wakeup call. Unfortunately, there are plenty of problems on the horizon for Aussie retirees. And the biggest problem is one that is hiding in plain sight. It’s so big that everyone can see it, but nobody knows what to do about it.
It’s no coincidence that all the ideas I just mentioned are specifically designed to deal with the dangerous event set to strike during your retirement. After all, I’m all about finding solutions, not problems. But what is this threat?
Some time ago, I came across this chart:
It shows the projected inflows and outflows of the Superannuation system as a whole, so contributions and payouts. It’s from 2004, so it’s out of date. I spent hours looking for an updated version, but there aren’t any. And researchers have bluntly refused to publish a new one. You’ll see why in a minute.
Here’s the problem that should horrify anyone paying money into Superannuation, the stock market and any other Australian investments: The two lines cross.
That means, at some point, Super contributions will be swamped by those taking money out of the Super system. One of the biggest sources of demand for Australian investments is going to disappear.
It will be replaced by an enormous amount of retirees selling their investments to pay for day to day expenses. The rug will be pulled out from underneath investment prices as supply overwhelms demand. Stock markets, property markets and other investments will plunge as retirees figure out that whoever sells first will get the best price.
Now the government is already working feverously to buy time. They’re going to raise the size of compulsory super contributions. They’re going to change the investment mix Super funds hold. And you’ve probably read about the hullabaloo involving property investing and self managed super funds.
But none of this changes the end result. Because that’s predetermined by demographics. There simply won’t be enough people in the work force to buy all the investments retirees are going to sell to fund their retirement.
The good news is, I mentioned the solutions above. Not all investments rely on prices for their payouts. Some pay income, like dividend paying shares. Retirees will be spending money, so corporate profits should remain high. That means high dividends too.
Other investments have a fixed, predetermined payout which you can pre-book for your retirement years. Regardless of the price of those investments in the meantime, you’ll know exactly when the payout is due and exactly how much you’ll get.
Another option is to adjust your living expenses by getting more bang for your buck. My favourite one involves an ancient form of time travel.
Even if you’re not a Money for Life Letter subscriber, I’m sure you can think of ways to shore up your retirement in the face of demographic change and a complete failure of the your government’s attempt to provide for your retirement. After all, there are alternatives.
If you want to fund out more about the ones I’m recommending click here.
Nick Hubble
Editor, The Money for Life Letter
