On 7 August 2018 the Australian population has edged past the 25 million mark. What could this mean for the future financial wellbeing of everyday Australians? Hear from Certified Financial Planner® Professional Tony Sandercock of wetalkmoney about the potential impact on finances and retirement outcomes of a bigger population. (This article originally appeared in Money and Life)
According to Mccrindle Research, the Australian population reached the 25 million mark earlier this month. If you were born in 1970, you’ve seen the population of Australia double in your lifetime and Mccrindle are forecasting a similar rate of growth for the next three decades. If their estimates are on target, we’ll be a country of 40 million people by 2048.
So what could that mean for jobs, retirement plans and the many other things our financial future depends on? “While the jury is out on whether population growth is overall a good or bad thing, there is the potential for a bigger population to strengthen our economy and lower our personal tax burden,” says Tony. “If a growing Australia means more jobs, then there’s a bigger tax base, leading to everyone paying less tax. That’s the theory at least. It can also be beneficial for our businesses to have a bigger domestic market for goods and services.”
The challenges of an ageing population
However, when it comes to our financial future, it’s likely the composition of our population counts more than how large it becomes. in 2016, 15% of Australians were aged 65 or over but that figure is expected to rise to 22% by 2056. “We’re generally a very successful country,”
says Tony. “One of the things we are particularly good at is living longer. Aussie men are third in the world for life expectancy with an average of 80.4 years. While women live longer – 84.6 years on average – they’re sixth in the world. It’s good news to have a greater chance of more years to look forward to, but it means our nation needs to make sure our retirement savings and income last longer.”
While Aussies are joining the ranks of 65+ in greater numbers, the working population isn’t expected to keep up. By 2042, the number of people of working age is expected to flat line, with zero growth expected by this time. With only 2.5 working age people to support each person aged 65+ – half the number there were in 2002 – there could actually be a shortfall in the tax revenue it will take to pay for the income and health needs of retirees.
“It’s impossible to say how much retirees can expect to rely on the age pension as a source of income in 2056,” says Tony. “However it’s likely future governments will have their budgets stretched if they’re to provide all the free services we enjoy now - education, health care and social security payments. So it’s not just retirees who might need to become more financially self-reliant. We could all be faced with a steep rise in our cost of living in years to come, because there’s just more to pay for from our personal income.”
The danger of debt
With this outlook for our future household budgets in mind, current levels of personal debt are of even greater concern. Latest figures from ASIC report that Australian credit card balances stand at $45 billion and 1 in 6 consumers are struggling with credit card debt.
“Debt, by any measure is out of control,” says Tony. “Spending more than we earn is simply not sustainable if we’re to have enough to live on for a retirement that could stretch out to 20 years or more. In choosing your current lifestyle and the debts you’re taking on to maintain it, you may get to feel very comfortable on this part of your journey. But If you don’t scale things back a little now and save instead of borrowing, you could face a big drop in your income and living standards when you reach retirement.”
As Dr Vince FitzGerald says in an Ageing Report from the Committee for Economic Development of Australia (CEDA), “only in the most favourable of circumstances will people relying solely on the 9% Superannuation Guarantee enjoy in retirement a standard of living close to what they enjoyed while working, and most of the many Australians who came into
superannuation only in the past 15 years or so, will not achieve an adequate retirement income".
An ageing workforce too?
In Tony’s experience, the need to keep working to maintain our income and lifestyle has already started to impact the generation approaching retirement. “I’ve been helping people with their money for 30 years and I used to have clients coming to me all set to retire at 55,” says Tony. “That’s become rare these days. But working for longer can be great for your future income in a way that’s hard to match just by saving more. Let’s say you save an extra 5% of your salary into super 10 years before retirement and that gets you 75% of a years’ income with some decent compounding returns over the period. So you could save more for 10 years to fund an extra year of retirement, or just work for another year instead. Better still, consider both options!”
In Tony’s view the benefits of working longer aren’t limited to your finances. “It brings you a lot more than money, including new things to learn and social connections,” says Tony. “It helps if you have a job that gives you a sense of purpose and fulfilment. When I started wetalkmoney at 51, I decided to work forever and ‘retire the idea of retirement’ for myself. It makes sense to me because I enjoy what I do and feel I really add value to my clients’ lives. I currently work four days a week and plan to scale back to three days in my 60s, two days in my 70s and, hopefully, one day in my 80s.”
Of course, Tony knows that continuing to work indefinitely isn’t for everyone. “But it is one of the levers you should consider when it comes to managing your future income,” says Tony. “You can’t be completely in control of the outcome for your finances because there are too many unknowns including how long you’ll live and whether there will be an age pension by the time you retire. Controlling what you spend and borrow now, and managing your risks, gives you a way to limit negative impacts that could come from a bigger population or the other factors that can change the fortunes of our economy.”
 CEDA, Growth 51: Australia's Ageing Population, 23 January 2017
 Australian Bureau of Statistics Media Release, Female life expectancy continues to climb, 18 October 2017, “"Female life expectancy increased to 84.6 years in 2016 and is now the sixth highest in the world. Japan tops the list with 86.4 years," Beidar Cho, ABS Director of Demography, said. Male life expectancy remained steady at 80.4 years, with only two other countries in the world having higher male life expectancy.” http://www.abs.gov.au/ausstats/abs@.nsf/latestProducts/3302.0.55.001Media%20Release12014-2016
 Australian Government Treasury, Australia’s Demographic Challenges, “growth in the number of people of workforce age is expected to fall from around 1.2 per cent per annum over the last decade to almost zero in forty years’ time.” http://demographics.treasury.gov.au/content/_download/australias_demographic_challenges/html/adc-04.asp
 Australian Government Treasury, Australia’s Demographic Challenges “In 2002 there were more than five people of working age to support every person aged over 65. By 2042, there will only be 2.5 people of working age supporting each person aged over 65.” http://demographics.treasury.gov.au/content/_download/australias_demographic_challenges/html/adc-04.asp
 ASIC REP 580 Credit card lending in Australia, 4 July 2018, https://download.asic.gov.au/media/4800801/asic-credit-card-infographic-4-july-2018.pdf
 Australian Institute of Health and Welfare, Australia’s changing age and gender profile, 21 April 2017, “In 2016, there were 3.7 million (15%) Australians aged 65 and over-increasing from 319,000 (5%) in 1926 and 1.3 million (9%) in 1976 (Figure 1) [1, 2]. The number and proportion of older Australians is expected to continue to grow. By 2056, it is projected there will be 8.7 million older Australians (22% of the population)” https://www.aihw.gov.au/reports/older-people/older-australia-at-a-glance/contents/demographics-of-older-australians/australia-s-changing-age-and-gender-profile
 Mccrindle, 25 Facts about Australia at 25 million, “Australia’s population has hit 25 million” https://mccrindle.com.au/insights/blog/25-facts-about-australia-at-25-million/
 Mccrindle, 25 Facts about Australia at 25 million “It was 1970 when the population was 12.5 million, exactly half the current milestone.” https://mccrindle.com.au/insights/blog/25-facts-about-australia-at-25-million/
 Mccrindle, 25 Facts about Australia at 25 million “Based on the current trajectory, we are on track to reach 30 million people by 2030 and 40 million by 2048.” https://mccrindle.com.au/insights/blog/25-facts-about-australia-at-25-million/
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