Stop reading this for a minute and take a look at the people around you. Just act naturally. Don’t alarm anyone. Because you’re about to get a very rude shock. As you look around the group, consider this: for every 25 people you see, only one will be ready to fund their own retirement by age 65. That’s right: just one in the crowd of 25 will be financially independent and not have to rely on welfare. Will it be you? Or the guy sitting over there?
We hope it’s you because shocking statistics only work if they shock the reader into action. And you might be like the great majority of Australians who needs to take action fast if they’re going to recover lost ground in the race to retiring in comfort and security.
According to the Australian Bureau of Statistics, only 4 per cent of Australians live to aged 65 years and become self-funded retirees; the remaining 96 per cent of people are reliant on a taxpayer-funded pension, remain in the workforce, or are dead. And, modern science is enabling the human race to live longer.
The average person spends the first 20 years of their life gaining an education and skills to be used to earn an income. That same average person then spends the next 40-45 years of their life earning an income. Yet, in spite of all those years, almost all of the population spend the next 25 years (age 65-90) putting their hand out to other tax payers. We’ve got 65 years to put something in place for the last 25 years of our life and most people fail.
The annual cost of the age pension has doubled since the 1970s and has now risen to $44 billion – equating to nearly a quarter of all income tax revenue.
Compounding the concern is that, due to an ageing population, a quarter of all Australians will actually be in the 65 years and older age bracket by the year 2047, so Australia’s already quite dire welfare position will only dramatically worsen unless people start proactively planning for their own financial future.
I’ve always laid a large part of the blame for the low rates of self-sufficiency in retirement at the door of financial illiteracy, which I believe is at crisis point in this country. Some industry observers say Australia has an under-supplied housing crisis and others say there’s an affordability crisis. I think it’s a financial literacy crisis.
Australians have above average education, are hard-working, enjoy low unemployment, and earn above average incomes. But, the statistics appear to indicate that most people are financially illiterate, including many professionals who you’d expect to be able to crunch the numbers.
It constantly surprises me how few people understand the basics, such as the power of compounding and leveraging, good debt versus bad debt, and how negative gearing works. A generally intelligent person can generate a decent income, but financial intelligence is about knowing what to do with the money you make. If a person doesn’t understand the basics, they won’t realise opportunities to set themselves up for the future.
Most of us are in the workforce for 40 years. It’s not what we earn that counts, it’s what we do with it.
The smart ones among us get advice and start their course with a structured investment strategy from about age 30. If you’re not one of them, you’d better start thinking about what you can do from the position you’re in right now. It’s not too late to act if you want to end up on the plus side of the retirement ledger. But you’ll need to think fast.
According to the ATO, there are nearly thirteen million taxpayers in Australia and close to two million property investors. At least those 19% of Australian taxpayers who are property investors are having a crack at becoming financially independent. Although, 72.8% of all property investors only own the one property and a further 18.9% own two properties. Depending on your age and the type of lifestyle that you’d like to live when you exit the workforce, the odds are that you’ll need several properties.
So take another look around right now. Count to 25, and then decide who it’s going to be. I hope you pick you.
About Propertyology Head of Research and REIA Hall of Famer, Simon Pressley
Simon Pressley is a 3-time Australian Buyer’s Agent of the Year, an REIA Hall of Fame Inductee, a tertiary-qualified Property Investment Advisor, and a graduate of Australian Institute of Company Directors. His reputation as a thought-leading property market analyst is unparalleled, including correctly forecasting Hobart’s boom, Sydney-Melbourne’s last downturn, numerous regional star performers, and Australia coming out of COVID with the biggest boom in more than 15-years.