Future-proofing our property market and economy – tackling our ageing population and how to retire wealthy (Ep.112)

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In this week’s episode, Dave, Cate and Pete take you through:

  1. Ikigai and retirement planning, what is your reason for being? The trio discuss the importance of retirement planning, which for our younger generations, may seem too far into the future to imagine. However, the proliferation of the FIRE movement (financial independence, retire early), has started to permeate and evolve traditional thinking around retirement ages. There are other options that investors can take to retire early, but this takes planning and sacrifice to make happen. Of course, a big part of retirement planning is ensuring that you have a reason for being (or getting out of bed each day), which the Japanese call ‘Ikigai’. So much of our identity can be connected to what we do for work, and it is important in retirement planning to ensure that you have the ability to fund your interests once work slows down or stops.
  2. Explaining our population pyramid. Over time, the percentage of our ageing population has increased. In 1927 our population aged 65 and over was 5%, which moved to 9% by 1977 and is now 15% as at 2017. ABS Projections expect that this will have reached 22% by 2057 and 25% by 2097.
  3. Global impacts of an ageing population. Australia is not the only nation facing the challenges of an ageing population. Across the globe, Japan’s economy has been stagnating for decades, due to increased costs for health and retirement funding. With it’s one child policy, China was heading this way too, but have since evolved their policy to mitigate the effects. If China’s economy stagnates, this could have international impacts. Thankfully, Australia has one of the best retirement funding schemes in the world, but many who are currently retiring didn’t have access to Superannuation for their entire working life.
  4. Historical and social factors that have contributed to our increasing elderly population. The trio discuss the key changes in our society and economy that are driving our ever-increasing elderly population. From life expectancy, waves of migration activity, women in the work force, slower birth rates and families having less children.
  5. Changes in the workforce in relation to our older generations. Over time, we have seen huge shifts in people working longer, whether by choice or due to older age limits on pension entitlements, enforced superannuation and less reliance on welfare, kids living at home longer, and percentages of older women in the workforce double in the last 20 years, not to mention the impact of no-fault divorce and heightened divorce numbers since the 1970’s… The trio discuss how these key changes have impacted the property market.
  6. Underemployment is becoming a major issue for over 55’s. Underemployment tracked by the ABS include the number of people who want to work more, but are unable to. Whether due to discrimination or other factors, 6.1% of our older population are underemployed, which is a big issue for many households.
  7. Dropping rates of home ownership. The trio discuss the changes in our younger demographics which contribute to falling rates of home ownership. Home ownership is no longer the major aspiration that it used to be, with many more young adults choosing to study and for longer (not to mention a great holiday or two travelling the world). This delay in earning a full time income, coupled with the choice of many to start a family and get married later in life, means that home ownership rates for our younger generation are significantly lower.
  8. The impact on our economic outlook as our aged population increases. Due to underemployment and divorce rates, many of our ageing population are choosing to work longer, but many will need some social support when they retire. Australia will face challenges in funding aged care homes, as less of our population will be working, which means there will be less money to fund these things. Eight out of ten people who are retirement age are ‘stayers’ and will elect not to downsize, which will have impacts on the supply of property and pressure for those who rent. The trio discuss some macro economic measures which could be introduced, particularly those that encourage downsizing.
  9. How to retire wealthy. Interestingly the split of debt for households aged above 54 exhibit a relatively even division between owner occupied debt and investment debt. The main increase in investment ownership over the last two decades has been in the 50+ age group. This is not surprising as those who are further in their life’s journey would be in a better financial position, they have been working for longer and may not have children to support anymore. However, it is a good reminder to our listeners that you don’t need to do everything immediately, and you don’t need to own many properties to supplement your superannuation. The trio give their advice to our younger generations who are looking to make smart investment decisions.

Resources

Show notes

  • FIRE movement – financial independence, retire early 
  • Save most of your money and invest.
  • Retirement may be a long way off, but that is traditional thinking. There are options to retire early but you have to plan for that and make some sacrifices now.  
  • Think about what you’re going to do beyond retirement – you need to have interest and passions, you need to have a plan.  
  • Ikigai – the reason for getting up in the morning. Once you retire, what is your plan? A lot of people’s identity is closely related to their job. What happens when that’s gone? 
  • Not just about retirement, but all the time. 
  • Or simply shaking off the shackles of having to work and working because you want to.  
  • Our population pyramid 
  • % of our population aged 65 and over
    • 2017: 15%
    • 1977: 9% 
    • 1927: 5% 
  • Predictions:  
    • by 2057: 22% 
    • by 2097: 25% 
  • Ageing population and the effects on the economy – a tour around the world.  
  • Ageing population – can stagnate an economy for a long period of time and Japan is a prime example of that, they’ve been in stagnation for decades now, due to increased health costs, funding retirement. China was heading this way too, due to their one child policy, but have since turned that around, but there will still be extreme pressure if they’re not able to push out kids. If their economy stagnates, this could have international impacts. 
  • We have one of the best retirement funding in the world – but a lot of people retiring at the moment didn’t have access to Super for their entire working life. 
  • What historical and social factors have contributed to this increasing percentage? 
  • We’re living longer – life expectancy is very different 
  • War times impacting births. Then the baby boomer generation. 
  • Waves of migration activity
  • Slower birth rates now compared to decades earlier 
  • Households are getting smaller 
    • In 1911, the average number of people per household was 4.5.  
    • By 2016, that number had fallen to 2.6. 
  • Women going to work – less opportunity to have more kids, if you want to spend more money, you have to make more money. 
  • What changes have we seen in relation to the older generation and the workforce? 
  • Working longer by choice or perhaps necessity.  
  • Older age limits to pension entitlement – hallmark of working longer 
  • Enforced superannuation 
  • Kids living at home longer. 
  • Less welfare – less reliance on the social state.  
  • Increases property values – lower ownership rates of property than ever before, this interconnects with the fact that people are holding onto property for longer. We’ve never sold more property than in 2003, 18 years ago, despite our population growing since then.  
  • More people finding it tough to get the outcomes that were more achievable years ago. 
  • As a government, you need to set policy to make the corrections for changes in demographics and trends.  
  • Huge shift in percentage of older women in the workforce 
  • Due to divorce 
  • Homelessness – mature women who are single again – financial independence is a long way off. This increase in the 55-64 year bracket is a significant social issue and will likely influence social housing policy and possibly negative gearing/other tax offering for investors: 
  • Underemployment a major issue for over 55’s 
  • Underemployment tracks the number of people who WANT to work more, but are unable to.  
  • 6.1% of people in the older age bracket are underemployed – and that’s a real issue. It plagues a lot of households.  
  • It’s interesting that someone at the mature end of their career that underemployment has this impact. 
  • Could be because of discrimination because they’re older.  
  • Rate of home ownership has dropped 
  • It’s harder for singles than it’s ever been – Percentage of families that have two people working, which drives up borrowing capacity. If you’re a single or an underemployed single, it’s harder than it’s ever been to own a home. You are competing with double income households, increase affordability and price points. 
  • Not the single aspiration as it used to be.  
  • More people are educated and studying for longer – means that there is a delay to beginning full time work and earning an income, to enable you to save and build up borrowing capacity.  
  • At the start of adulthood, people want to rent where the action is. Then as they get to mid-20’s they start thinking about saving for a home. Whereas Pete’s generation had already bought their first home by 24, or a serious deposit built up.  
  • More are travelling. 
  • More new arrivals – while they are skilled migrants, they may not be cashed up and ready to go to get a home.  
  • Employment risk? Under-employment, casualisation of workforce (gig economy) – not a lot of job security in these roles, no guarantee of income.  
  • A reluctance to take on debt/exposure? 
  • Is there a correlation between the delay in home ownership with the delay in starting a family and getting married later in life. 
  • Why do older people consume less? 
  • Less transport – having to get to work, get around town. 
  • Less eating out. 
  • Not likely supporting children any longer. 
  • Fear about limited savings for retirement, more frugal.  
  • You want to get some good advice, buy the right property, early on the journey to set yourself up for the future. 
  • What could this mean for our economic outlook as our aged population numbers increase? 
  • Not every ageing person is necessarily buying property in the inner city – impact of divorce and underemployment. There are a lot moving through who do need some social support.  
  • Might be a change in attitude as we have a really tight rental market at the moment.  
  • Fund more aged homes – royal commission into the issues faced here.  
  • If less are working, there is less money to fund these things – it will become a greater challenge.  
  • 8 out of 10 don’t choose to right size, they are stayers. What precipitates them moving is that they have to – accident or health deterioration.  
  • No simple solution, but it’s certainly something that will have an impact.  
  • Macro level – stimulate baby boomers to make decisions so that we have less than 8 out of 10 who are ‘stayers’. That increases supply and less pressure for those who rent, higher home ownership rates for the younger generation. 
  • Women in the workforce – 55-64 year old women in the workforce in: 
    • 1999 – 30% 
    • 2020 – 60% 
  • Significant bearing on property and property selection. A proportion of that contingent could be strong earning women on their own or in a couples relationship. Likely reflected in auction numbers of people putting up their hands for properties close to town.  
  • Split of debt 
  • Households aged above 54, have relatively even split between owner occ debt and investment debt. 
  • Main increase in investment property ownership over the last two decades have been in the 50+ age group. The reality is that the majority of investors are older investors.  
  • You’re in a stronger financial position – kids have moved out, no longer supporting them. 
  • It’s a good reminder – you don’t have to do everything straight away, you don’t need to do it fast, you don’t need to own lots to supplement your superannuation.  
  • Even if you own freehold one average priced property, which is $650,000 – that’s what a couple needs to retire on + the super that you’re getting, you’re in a very good position. 

Gold Nuggets

David Johnston – The Property Planner’s Golden nugget: encourage younger listeners to buck the trend and get into proeprty earlier like previous generations have, and manage your money well. Which is a primary part of the FIRE movement. If you can build this up before you have children, you will get ahead of the game in relation to the rest of the population, and that will set you up to be in that smaller percentage of the population who own 1 or 2 or maybe even more investment properties when they actually retire.

Cate Bakos – The Property Buyer’s Golden nugget: power of time, you just need one good property, if you can get on the property ladder relatively young, you’ll be surprised how far it can advance your financial position. Hold firm and pay it down.

Weekly Market Update

  • NAB late to the property party – bumps up property forecast for 2021. In its quarterly report, NAB has recently adjusted its property forecast for national price growth to now hit 19% in 2021. This is bumped up from its prediction 3 months ago of 14%, (and 6 months ago of 8%). Just goes to show, that if you’re not a specialist in the market, you tend to lag behind the data and we’re seeing that consistently across banks and investment firm economists. And of course, being bold is not how many economists like to express themselves.

  • Labor reveals plans for property in the run up to the next election. A collective sigh of relief was audible all over the nation, after Labor announced that it would not be pursuing changes to negative gearing and capital gains tax. This is an encouraging result, as we are currently facing a housing crisis in our country, and the most vulnerable are experiencing challenges in the rental market. It may come as a surprise, but more than 90% of property investment only own one or two properties. Signalling that it is mum and dad investors that make up the majority of these investors, and while some could say that they are and simply looking to better their retirement, the reality is that they are providing shelter to a significant percentage of our nation’s population, and unlike many other nations, Australia doesn’t have a social housing policy that provisions for shelter for the majority of renters.

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