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FACING PLANNING FOR RETIREMENT
TODAY, ‘GOVERNANCE & REFORMS:
THE WAY TO GO
Durban, South Africa – 18-20 August 2013
Dr Jack Jacoby
Trends
1. People are living longer
2. People are working longer
PARTICIPATION RATES OF 50-64 YEAROLDS IN 1970 AND 2008
19 August 2013
Dr Jack Jacoby – IRF Conference 2013
Source: D’Addio et al. (2010) based on OECD Employment Database.
1 2 http://dx.doi.org/10.1787/888932370303
EMPLOYMENT TO POPULATION RATIO,
PEOPLE AGED 55-64 YEARS
19 August 2013
Dr Jack Jacoby – IRF Conference 2013
Source: OECD Factbook 2010 <www.oecd.org>
LABOUR FORCE PARTICIPATION OF PEOPLE AGED
19 August 2013
55 YEARS AND OVER - 1980-2010 AUSTRALIA
Dr Jack Jacoby – IRF Conference 2013
Year to June.
Source: ABS 1980-2010 Labour Force Survey
Trends
1. People are living longer
2. Older People are working longer
3. Inflation and the cost of living longer is increasing – medical,
housing, services
ASFA RETIREMENT STANDARD (WEEKLY)
Modest
– single
Modest
–
couple
Comfort
-able
– single
Comfort
-able
–
couple
19 August 2013
Housing - ongoing only
$61.53
$59.06
$71.31
$82.67
Energy
$41.42
$55.01
$42.03
$57.01
Food
$74.23
$153.76
$106.04
$190.88
Clothing
$17.49
$28.39
$37.86
$59.06
Household goods and
services
$25.95
$35.18
$72.99
$85.51
Health
$38.06
$73.45
$73.34
$133.27
Dr Jack Jacoby – IRF Conference 2013
Transport
$94.48
$97.15
$140.79
$143.47
Leisure
$71.61
$106.69
$217.02
$297.40
Budgets for various households and living standards (March Quarter 2013)
The figures in each case assume that the retiree(s) own their own home and relate to expenditure by the household.
This can be greater than household income after income tax where there is a drawdown on capital over the period
of retirement. Single calculations are based on female figures. All calculations are weekly, unless otherwise stated.
Communications
$9.45
$16.54
$25.97
$33.06
ASFA RETIREMENT STANDARD (WEEKLY)
Modest
– single
Modest
–
couple
Comfort
-able
– single
Comfort
-able
–
couple
19 August 2013
Housing - ongoing only
$61.53
$59.06
$71.31
$82.67
Energy
$41.42
$55.01
$42.03
$57.01
Food
$74.23
$153.76
$106.04
$190.88
Clothing
$17.49
$28.39
$37.86
$59.06
Household goods and
services
$25.95
$35.18
$72.99
$85.51
Health
$38.06
$73.45
$73.34
$133.27
Dr Jack Jacoby – IRF Conference 2013
Transport
$94.48
$97.15
$140.79
$143.47
Leisure
$71.61
$106.69
$217.02
$297.40
Budgets for various households and living standards (March Quarter 2013)
The figures in each case assume that the retiree(s) own their own home and relate to expenditure by the household.
This can be greater than household income after income tax where there is a drawdown on capital over the period
of retirement. Single calculations are based on female figures. All calculations are weekly, unless otherwise stated.
Communications
$9.45
$16.54
$25.97
$33.06
Trends
1. People are living longer
2. Older People are working longer
3. Inflation and the cost of living longer is increasing – medical,
housing, services
4. People are saving less
Age
$
Men
15+
71,645
Women
15+
40,475
60-64
198,23
Men
5
Women
60-64
112,63
2
Dr Jack Jacoby – IRF Conference 2013
Has Super
19 August 2013
MEAN SUPERANNUATION BALANCES (20092010) AUSTRALIA
Dr Jack Jacoby – IRF Conference 2013
Source: HSBC
19 August 2013
HOLIDAY VERSUS RETIREMENT
Trends
1. People are living longer
2. Older People are working longer
3. Inflation and the cost of living longer
is increasing – medical, housing,
services
4. People are saving less
5. Money saved during one’s working life
needs to fund a longer retirement
Trends
1. People are living longer
2. Older People are working longer
3. Inflation and the cost of living longer is increasing – medical,
housing, services
4. People are saving less
5. Money saved during one’s working life needs to fund a longer
retirement
6. During economic downturns, earnings from liquid investments fall
Savings Needed
for 20 Years
Savings Needed
for 30 Years
$1,000
$166,696
$212,150
$2,000
$333,392
$424,300
$3,000
$500,087
$636,450
$4,000
$666,783
$848,601
$5,000
$833,479
$1,060,751
$6,000
$1,000,175
$1,272,901
$7,000
$1,166,871
$1,485,051
$8,000
$1,333,567
$1,697,201
$9,000
$1,500,262
$1,909,351
Source: U.S. Census Bureau,
Saperston Companies, Bankrate. Date
Verified: 5.8.2013
$10,000
$1,666,958
$2,121,501
Dr Jack Jacoby – IRF Conference 2013
Monthly
income
need
19 August 2013
REQUIRED SAVINGS FOR
RETIREMENT
19 August 2013
DEPOSIT INTEREST RATE 1991-2010
Dr Jack Jacoby – IRF Conference 2013
Deposit interest rate (%) in Australia
The Deposit interest rate (%) in Australia was last reported at 4.21 in 2010, according to a World Bank report published
in 2012. Deposit interest rate is the rate paid by commercial or similar banks for demand, time, or savings deposits.
Trends
1. People are living longer
2. Older People are working longer
3. Inflation and the cost of living longer is increasing – medical,
housing, services
4. People are saving less
5. Money saved during one’s working life needs to fund a longer
retirement
6. During economic downturns, earnings from liquid investments fall
7. People are having fewer children
TOTAL FERTILITY RATE, 1960-2011
(LIVE BIRTHS PER WOMAN)
19 August 2013
Dr Jack Jacoby – IRF Conference 2013
Trends
1. People are living longer
2. Older People are working longer
3. Inflation and the cost of living longer is increasing – medical,
housing, services
4. People are saving less
5. Money saved during one’s working life needs to fund a longer
retirement
6. During economic downturns, earnings from liquid investments fall
7. People are having fewer children
8. In a globalised world, economic downturns are broader, deeper and
longer
A HISTORY OF MODERN CRISES
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Dr Jack Jacoby – IRF Conference 2013
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Great Depression (1929 to late 1930s), stock market crash, banking collapse in the United States
sparks a global downturn, including a second but not heavy downturn in the U.S., the Recession of
1937. Durations: 43 and 13 months respectively.
Recession of (1945) Duration: 8 months
Recession of (1948 - 1949) Duration: 11 months
Post-Korean War Recession (1953 - 1954) - The Recession of 1953 was a demand-driven recession
due to poor government policies and high interest rates. Duration: 10 months
Recession of (1957 - 1958) Duration: 8 months
Recession of (1960 - 1961) Duration: 10 months
Bond Inversion of (1965 - 1967) no recession materialized
Recession of (1969 - 1970) Duration: 11 months
1973 oil crisis (1973 - 1975) - a quadrupling of oil prices by OPEC coupled with high government
spending due to the Vietnam War leads to stagflation in the United States. Duration: 16 months
1979 energy crisis - 1979 until 1980, the Iranian Revolution sharply increases the price of oil
Recession of (1981 - 1982) Duration: 16 months
Early 1980s recession - 1982 and 1983, caused by tight monetary policy in the U.S. to control inflation
and sharp correction to overproduction of the previous decade which had been masked by inflation
Great Commodities Depression - 1980 to 2000, general recession in commodity prices
Late 1980s recession - 1988 to 1992, collapse of junk bonds and a sharp stock crash in the United
States leads to a recession in much of the West
Japanese recession - 1991 to present, collapse of a real estate bubble and more fundamental
problems halts Japan's once astronomical growth
Asian financial crisis - 1997, a collapse of the Thai currency inflicts damage on many of the
economies of Asia
Early 2000s recession - 2001 to 2003: the collapse of the Dot Com Bubble, September 11th attacks
and accounting scandals contribute to a relatively mild contraction in the North American economy.
19 August 2013
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Trends
1. People are living longer
2. Older People are working longer
3. Inflation and the cost of living longer is increasing – medical,
housing, services
4. People are saving less
5. Money saved during one’s working life needs to fund a longer
retirement
6. During economic downturns, earnings from liquid investments fall
7. People are having fewer children
8. In a globalised world, economic downturns are broader, deeper and
longer
9. The under-employment of our youth
YOUTH UNEMPLOYMENT RATES
19 August 2013
Dr Jack Jacoby – IRF Conference 2013
Source: OECD
Trends
1. People are living longer
2. Older People are working longer
3. Inflation and the cost of living longer is increasing – medical,
housing, services
4. People are saving less
5. Money saved during one’s working life needs to fund a longer
retirement
6. During economic downturns, earnings from liquid investments fall
7. People are having fewer children
8. In a globalised world, economic downturns are broader, deeper and
longer
9. The under-employment of our youth
10. The falling relative proportion of tax generating workers
TAX BURDEN
19 August 2013
OECD tax wedge changes
1
OECD tax
wedge
Income tax
Employee SSC
Employer SSC 2
2010-2012
-1.20
-0.80
-0.40
0.00
0.40
0.80
1.20
1. Single individual without children at the income level of the average
worker.
2. Includes payroll taxes.
Sources: country submissions, OECD Economic Outlook Volume
Dr Jack Jacoby – IRF Conference 2013
2007-2010
Trends
1. People are living longer
2. Older People are working longer
3. Inflation and the cost of living longer is increasing – medical,
housing, services
4. People are saving less
5. Money saved during one’s working life needs to fund a longer
retirement
6. During economic downturns, earnings from liquid investments fall
7. People are having fewer children
8. In a globalised world, economic downturns are broader, deeper and
longer
9. The under-employment of our youth
10. The falling relative proportion of tax generating workers
AUSTRALIA’S SUPERANNUATION TIMELINES
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Late 1800 A limited number of private companies provide a form of superannuation for select employees.
Post 1945 Superannuation became more recognised but access limited to executive and public sector employees.
1960s and 70s Government inquiries find s factors are hindering the ability of Australians to save for retirement.
1983 Tax changes are introduced to encourage people to hold benefits in the super system until retirement.
1985 The ACTU seeks a 3% employer superannuation contribution to be paid into an industry fund.
1986 The Commission approves the ACTU's proposal. Superannuation coverage stands at around 40% of
employees.
1989 In the four years following the 1986 National Wage Case, super coverage increases rapidly to 79% of
employees.
1991 Private sector super coverage reaches 68%, up from 32% in 1987.
1992 Superannuation Guarantee (SG) introduced. Employers required to make tax-deductible superannuation
contributions on behalf of their employees.
1995 Super coverage for women hits 85%, from 25% in 1983. Super fund assets grow from $40 billion to over
$180 billion.
1997 Legislation to give employees a choice of super fund is introduced. Over 90% of the workforce is covered by
super.
1999 A Lost Members Register, maintained by the Australian Taxation Office (ATO) is established.
2002/03 Superannuation employer contributions reach 9% of salary, after being phased in over a 10-year period.
2005 Legislation to give employees a choice of super fund comes into effect on 1 July.
2006/07 Sweeping changes are introduced to super including: abolition of tax on lump sums and pension
payments made to members over age 60, abolition of Reasonable Benefit Limits, new minimum standard rules for
pensions and annuities, removal of compulsory cashing of superannuation benefits for those over age 65,
introduction of penalty tax caps on the amount which may be contributed to super, extension of co-contribution
scheme to the self-employed, and simplification of tax calculations through the introduction of streamlined
components.
2009 Concessional contributions are limited to $25,000 per person per year, from 1 July.
2012/13 Super contribution rebate for low income workers earning less than $37,000 a year commences 1/7/12.
2013/14 SG contribution rate rises to 9.25%, rising incrementally to 12% by 1 July 2019. Employers to make SG
contributions for employees beyond age 70 if they are still employed from 1 July 2013 and onwards.
Trends
1. People are living longer
2. Older People are working longer
3. Inflation and the cost of living longer is increasing – medical,
housing, services
4. People are saving less
5. Money saved during one’s working life needs to fund a longer
retirement
6. During economic downturns, earnings from liquid investments fall
7. People are having fewer children
8. In a globalised world, economic downturns are broader, deeper and
longer
9. The under-employment of our youth
10. The falling relative proportion of tax generating workers
11. Late entry into superannuation by the Baby Boomer generation
12. Technology and the virtual workplace
Trends
1. People are living longer
2. Older People are working longer
3. Inflation and the cost of living longer is increasing – medical,
housing, services
4. People are saving less
5. Money saved during one’s working life needs to fund a longer
retirement
6. During economic downturns, earnings from liquid investments fall
7. People are having fewer children
8. In a globalised world, economic downturns are broader, deeper and
longer
9. The under-employment of our youth
10. The falling relative proportion of tax generating workers
11. Late entry into superannuation by the Baby Boomer generation
12. Technology and the virtual workplace
13. Changing work emphasis from attendance to performance
Trends
1. People are living longer
2. Older People are working longer
3. Inflation and the cost of living longer is increasing – medical,
housing, services
4. People are saving less
5. Money saved during one’s working life needs to fund a longer
retirement
6. During economic downturns, earnings from liquid investments fall
7. People are having fewer children
8. In a globalised world, economic downturns are broader, deeper and
longer
9. The under-employment of our youth
10. The falling relative proportion of tax generating workers
11. Late entry into superannuation by the Baby Boomer generation
12. Technology and the virtual workplace
13. Changing work emphasis from attendance to performance
14. Lifetime career changes
STRATEGIES
19 August 2013
Dr Jack Jacoby – IRF Conference 2013
• Strategy 1: Employment of mature workers
• Strategy 2: During employment, help all workers
build additional interests and revenue sources
• Strategy 3: Establish mature networks
• Strategy 4: Mentoring
• Strategy 5: Education and literacy standards
• Strategy 6: Education of women
• Strategy 7: Get youth employed as soon as
possible
• Strategy 8: Stop using the term ‘retirement’