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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.

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Presentation on theme: "FACING PLANNING FOR RETIREMENT TODAY, ‘GOVERNANCE & REFORMS: THE WAY TO GO Durban, South Africa – 18-20 August 2013 Dr Jack Jacoby."— Presentation transcript:

1 FACING PLANNING FOR RETIREMENT TODAY, ‘GOVERNANCE & REFORMS: THE WAY TO GO Durban, South Africa – August 2013 Dr Jack Jacoby

2 Trends 1.People are living longer 2.People are working longer

3 PARTICIPATION RATES OF YEAR- OLDS IN 1970 AND August 2013 Dr Jack Jacoby – IRF Conference 2013 Source: D’Addio et al. (2010) based on OECD Employment Database. 1 2

4 EMPLOYMENT TO POPULATION RATIO, PEOPLE AGED YEARS 19 August 2013 Dr Jack Jacoby – IRF Conference 2013 Source: OECD Factbook 2010 OECD Factbook 2010www.oecd.org

5 LABOUR FORCE PARTICIPATION OF PEOPLE AGED 55 YEARS AND OVER AUSTRALIA 19 August 2013 Dr Jack Jacoby – IRF Conference 2013 Year to June. Source: ABS Labour Force Survey

6 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

7 ASFA RETIREMENT STANDARD (WEEKLY) Modest – single Modest – couple Comfort -able – single Comfort -able – couple 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$106.04$ 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$73.34$ Transport$94.48$97.15$140.79$ Leisure$71.61$106.69$217.02$ Communications$9.45$16.54$25.97$33.06 Total per week$434.22$625.26$ $1, Total per year$22,641$32,603$41,169$56, August 2013 Dr Jack Jacoby – IRF Conference 2013 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.

8 ASFA RETIREMENT STANDARD (WEEKLY) Modest – single Modest – couple Comfort -able – single Comfort -able – couple 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$106.04$ 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$73.34$ Transport$94.48$97.15$140.79$ Leisure$71.61$106.69$217.02$ Communications$9.45$16.54$25.97$33.06 Total per week$434.22$625.26$ $1, Total per year$22,641$32,603$41,169$56, August 2013 Dr Jack Jacoby – IRF Conference 2013 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.

9 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

10 MEAN SUPERANNUATION BALANCES ( ) AUSTRALIA Has SuperAge$ Men15+71,645 Women15+40,475 Men ,23 5 Women , August 2013 Dr Jack Jacoby – IRF Conference 2013

11 HOLIDAY VERSUS RETIREMENT 19 August 2013 Dr Jack Jacoby – IRF Conference 2013 Source: HSBC

12 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

13 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

14 REQUIRED SAVINGS FOR RETIREMENT 19 August 2013 Dr Jack Jacoby – IRF Conference 2013 Monthly income need 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 $10,000$1,666,958$2,121,501 The above sums assume your portfolio will earn a 6 percent annualized return during the course of your retirement and endure 2 percent annual inflation erosion. Source: U.S. Census Bureau, Saperston Companies, Bankrate. Date Verified:

15 DEPOSIT INTEREST RATE August 2013 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 Deposit interest rate is the rate paid by commercial or similar banks for demand, time, or savings deposits.

16 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

17 TOTAL FERTILITY RATE, (LIVE BIRTHS PER WOMAN) 19 August 2013 Dr Jack Jacoby – IRF Conference 2013

18 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

19 A HISTORY OF MODERN CRISES 19 August 2013 Dr Jack Jacoby – IRF Conference 2013 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 Durations: 43 and 13 months respectively. Recession of (1945) Duration: 8 months Recession of ( ) Duration: 11 months Post-Korean War Recession ( ) - The Recession of 1953 was a demand-driven recession due to poor government policies and high interest rates. Duration: 10 months Recession of ( ) Duration: 8 months Recession of ( ) Duration: 10 months Bond Inversion of ( ) no recession materialized Recession of ( ) Duration: 11 months 1973 oil crisis ( ) - 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 until 1980, the Iranian Revolution sharply increases the price of oil Recession of ( ) Duration: 16 months Early 1980s recession 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 to 2000, general recession in commodity prices Late 1980s recession 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 to present, collapse of a real estate bubble and more fundamental problems halts Japan's once astronomical growth Asian financial crisis , a collapse of the Thai currency inflicts damage on many of the economies of Asia Early 2000s recession 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.

20 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

21 YOUTH UNEMPLOYMENT RATES 19 August 2013 Dr Jack Jacoby – IRF Conference 2013 Source: OECD

22 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

23 TAX BURDEN 19 August 2013 Dr Jack Jacoby – IRF Conference 2013 OECD tax wedge changes 1 1. Single individual without children at the income level of the average worker. 2. Includes payroll taxes. Sources: country submissions, OECD Economic Outlook Volume 2012 (No. 92).

24 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

25 AUSTRALIA’S SUPERANNUATION TIMELINES 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 Tax changes are introduced to encourage people to hold benefits in the super system until retirement The ACTU seeks a 3% employer superannuation contribution to be paid into an industry fund The Commission approves the ACTU's proposal. Superannuation coverage stands at around 40% of employees In the four years following the 1986 National Wage Case, super coverage increases rapidly to 79% of employees Private sector super coverage reaches 68%, up from 32% in Superannuation Guarantee (SG) introduced. Employers required to make tax-deductible superannuation contributions on behalf of their employees Super coverage for women hits 85%, from 25% in Super fund assets grow from $40 billion to over $180 billion Legislation to give employees a choice of super fund is introduced. Over 90% of the workforce is covered by super 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 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 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/ /14 SG contribution rate rises to 9.25%, rising incrementally to 12% by 1 July Employers to make SG contributions for employees beyond age 70 if they are still employed from 1 July 2013 and onwards.

26 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

27 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

28 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

29 STRATEGIES 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’ 19 August 2013 Dr Jack Jacoby – IRF Conference 2013


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