What about Gen X?

Posted by Daniel Joseph

Poor Gen X; they are usually the least represented generation, Gen Y and the baby boomers are always hogging the limelight. If it isn’t a crazy weekend tainted by Gen Y doing something silly on the social media scene or a baby boomer giving their opinion of how out of control Gen Y are, Gen X are usually shafted into the corner because they don’t create sensationalist headlines that sell advertising space for the media. As much as the above scenario is a generalisation, the same poor representation of Gen X on the retirement scene is usually overshadowed by their parents, The baby boomers. When one thinks of retirement they recall marketing material depicting scenes of baby boomer couples walking along a beach enjoying their retirement or of one retiree going up the escalator and another going down to represent the returns on their super.

What about Gen X? A new study by Rabo Direct found that 40% of Gen X say their financial situation has worsened during the past year, one-third don’t have enough emergency money to last more than two months, and one-third regularly only just manage to make it through to their next pay day. With 40% of the 8.5 million Gen X’s feeling financial pressure, it is more than likely that none of them are paying attention to their retirement plan. When many of them eventually get back on their feet they could potentially be in their mid 50s and have very little time to set up a retirement plan that will allow them to retire early or comfortably. Below are some statistics of the scary facts of superannuation:

• 84% of Australians retire on less than $21,000 a year.

• Most Australians make no active choice when it comes to super; the majority (60%) have their super paid automatically into the default investment option of their employers chosen superannuation fund

• Of the 83 default super options available over the past five years, 51 delivered negative annual returns for members (6,066,129 member accounts) and 32 delivered positive returns (10,179,634 member accounts)

• Only 20% of large retail funds beat the S&P ASX 200 index

• In 1996 superannuation balances were $167bn and company profits were $161bn. In 2011 superannuation balances were $1,300bn and company profits were $530bn. As a percentage super funds that own equities are chasing a smaller pool of returns. Making it impossible for everyone to achieve above inflation returns if investing in equities.

• The Australian Prudential Regulation Authority reported that retail super funds have returned annually an average 2.9% over 10 years.

• The 2012 Melbourne Mercer Global Pension Index found that the typical super fund holds more than 70% of its assets in growth assets. Their report marked down Australia’s super system for ‘high level of exposure to volatile assets’, which it said left investors bearing too much risk.

What this means for Gen X is that they need to take a pro-active approach to their retirement. A default super option won’t create returns to help Gen X retire comfortably or early. The high possibility of the retirement age being increased in the future and improvements in medicine helping us live longer lives mean that Gen X should start planning immediately and look at options of taking control of their own super through a self managed super fund. As a population we cannot rely on the government for our retirement; only WE are responsible for how we choose to live the latter years of our lives.

Posted by Daniel Joseph, on 21st Feb 2013