Lifestyle

What happened to the wealth of retirees?

Mar 15, 2016

In the 1950s there was a TV program in black and white called The Millionaire. Each week a very wealthy benefactor—unseen by the viewers—would hand over an envelope with a cheque for a million dollars to his assistant, played by an actor named Martin Milner. The cheque would be delivered to a lucky individual, tax-free on the proviso that the recipient of the cheque would not disclose its origin. Each episode showed the effect on the lives of the individuals who had received this substantial amount of money.

The implication was that a millionaire was a wealthy person. Even today, if someone were to receive a million dollars, they would “feel” rich. But what does it mean to be a millionaire? Technically, if someone has a net worth of a million dollars (assets minus liabilities), they are considered a millionaire. Some feel that a millionaire is someone who has that money beyond the value of their home.

Back in the mid-1950s a million dollars was a large sum of money, equivalent to 8.5 million dollars in today’s money. Unfortunately, today a million dollars is not at all associated with wealth if you are a retiree, especially in Australia. When the median house prices in most capital cities are beyond half a million dollars we see that “wealth” is beyond the reach of most retirees. If you were to live in Central America or Spain, it would be a different story.

It’s important to get a perspective on the deteriorating financial situation of baby boomers and retirees. There are some undeniable economic facts:

In January 1990, term deposit interest rates were 17%.
Term deposit income generated in 1990 was $85,000.
In 2015 term deposit rates were an average of 2.5%.
In 2015, a million dollars in term deposit would generate revenue of $25,000.

We can see that there is a vast difference in income during the past 25 years. In today’s money terms the 1990 income equates to $157, 000. Many retirees would feel very comfortable with that income.

There is another problem for people in retirement or approaching retirement other than reduced income. There are new superannuation regulations as of 2017. The government is lowering the threshold at which a part pension cuts out. The limit will be $823,000 in assets other than the family residence. So what are the solutions or options?

Delay Retirement

Whether we like it or not, the government is extending the retirement age to 70 within 20 years. For those in the early 50’s or even younger, there is time to accumulate substantial money. If you love what you are doing and you retain good health, why not keep going? If you have already retired, make your children aware, so they don’t have to depend on the government.

Identify Your Retirement Lifestyle

What will your lifestyle look like? Do you want to travel, eat out regularly, wear nice clothes, drive a nice car, have private health insurance, or do you wish to live an austere lifestyle. Once you have figured that out, calculate what income you will need to live that way of life. Then take a realistic look at the amount of capital required to generate that income.

Save More and Spend Less

We of the baby boomer generation threw caution to the wind. We spent, borrowed and saved little. Instant gratification was our virtue. It’s time to cut back on spending and increase the saving. Once again teach this to your children, so they have a chance to be financially free as they age. Put the maximum tax-free allotment into your retirement fund and then add more.

Identify Where You Are Already A Multimillionaire

You may be over 60 and your future prospect looks like you are going to be on a pension. One area where you are not restricted is in your ability to dream and visualise. Why not make a list of where you have riches in your life? It may be in your relationship, in a hobby or in some technical ability that you possess. If you could monetise that skill or product, what would it be worth? You can do that at any age.

Some years ago an orthopaedic surgeon retired and as he loved skiing, he decided at age 73 to start a new career as a ski instructor for young children. Anna (Grandma), Moses, loved to embroider but had to give it up because of arthritis. She decided, however, at age 77, to use her artistic talents by painting. Ultimately, her paintings earned her millions.

Few people get up in the morning wanting to shrink their lives. We all want to expand our horizons. It’s been said that money is power. I disagree. The most powerful thing in life is an inspiration. When we are inspired, even in our senior years, we live more fulfilling lives. Often riches follow from that inspiration.