SMSFs and Risk

Will the government apply a (capital) tax to this attractive amount sitting in Australian superannuation balances; or, in other words, nationalise it?

Can superannuation be simplified or do we learn to live with ever increasing complexity?

What impact will matters such as inflation, lifestyle uncertainties, medical uncertainties, investment returns, have on our general way of life?

Will global financial crises become regular events, or deeper?

Are our growth stocks and property around the world overvalued?

Borrowings by the United States Government are not sustainable. When the rest of the world agrees with this, what effect will it have on all of us?

In these difficult circumstances, will the superannuation pension/drawdown you are planning last from retirement to the inevitable celebration of your life?

One thing we do know is that cost of living increases can be difficult to budget for and are certain. They are like death and taxes.

It may be that the assumed increasing life expectancy may moderate or even reverse in the future. Regardless, the expense of keeping ageing bodies alive will clearly increase in real terms.

Hospitals become more expensive, the treatment costs increase, antibiotics are becoming less effective and their replacements are more expensive. Perhaps viruses and bacteria will evolve into more seriously dangerous life forms.

The impact of increasing population throughout the world could have a negative impact on our standard of living.

It may be that increased life expectancy will be available only to the top one or two per cent of the population capable of insulating themselves from the likely changes ahead; those who are less likely to join the increasing number of people on or below the poverty line.

With the many changes happening around us, the task of successful financial planning for longer lives becomes difficult and uncertain for everyone no matter whether they are in government or some other sector of the community.

Our conclusions

Without a crystal ball to help us, what can be said with some certainty about the future outlook for people approaching retirement?

  • We think that Government assistance will always be required for the very old. More assistance will be required with increasing longevity
  • Superannuation would seem the most effective strategy to achieve financial security.
  • Existing taxation treatment and legislative protections for superannuation funds need to be increased.
  • Taxes overall will have to increase for this support and the retirement age will have to increase.
  • Superannuation arrangements must certainly be improved – to ensure that we are able to enjoy a reasonable lifestyle.
  • There will always be a need for government support for some retired people. This will increase and therefore:

This rather gloomy picture is fundamentally due to our assumption of an ever increasing life expectancy. As we have pointed out there are factors which we have to take into account. It is obvious that we need to be conservative with our future investment assumptions.