This leads to some uncomfortable predictions about the lifestyle we can expect in retirement, and what the Government will do to help us.
In Australia, we have not felt the impact of the GFC (Global Financial Crisis) as quickly or as hard as many other countries (like Greece or Ireland).
But recently, the International Monetary Fund said “The global economy is in a dangerous new phase”, so it is natural to be concerned about our own futures – especially if our most productive years are behind us. It is not easy to recover from a financial reversal when our ability to earn is diminishing with age.
With market volatility in recent months reaching levels not seen since the GFC, it is worth looking at the key factors affecting our economy in this new financial climate.
Populations in most developed countries like Australia are ageing. As people retire, incomes fall and spending patterns must be adjusted downwards. In some countries, economic growth has been extremely low and price deflation has occurred. An ageing population lowers the number of citizens available to work and requires more government assistance in terms of pensions, health care services and other benefits.
At the same time, we are living longer than ever, and our expectations about our standard of living is the highest it has ever been.
While this is happening, entire industries are being “off-shored” to countries with cheaper labour and lower environmental standards, and unemployment levels have risen in many countries which can lead to permanent loss of skills and higher levels of ‘unemployable’ workers whose skills no longer match the requirements of available jobs. Re-training or re-skilling is usually a costly exercise and many businesses are reluctant to invest in this process when there are doubts about the demand outlook.
Australian retail is in serious decline, partly due to the perceived benefits to consumers (cost & convenience) of online shopping. The strong Australian dollar has weakened our exports, while making imports much more attractive. Local merchants are feeling the squeeze.
These factors indicate that economic growth in Australia over the next few years is likely to be lower than the past decade.
In the decade to 2010, growth in Europe and the US was assisted by cheap debt and lax lending standards. Given the change in this type of behaviour, the question must be asked: where is economic growth to come from now?
A slower global economic growth rate means a period of lower returns on traditional assets classes (such as shares) and in traditional developed markets.
All of this means that retirees may have to adjust their expectations for future returns from key investment markets. This is particularly important for those of us waiting for the markets to start delivering the same returns experienced in the decade leading up to the GFC – some leading financial commentators believe that those returns were abnormally high, and are unlikely to be seen again for quite a few years.
Rod Genders is a senior Australian lawyer specialising in accident compensation and estate planning in Adelaide. His boutique specialist law firm is one of the oldest and most respected in Australia – visit it at www.genders.com.au . Rod is also a prolific author and speaker. Some of his articles and books on Wills, Probate, Trusts, Estate Planning, Asset Protection and Retirement Planning may be found at www.genders.com.au/adelaide-lawyer-blog.