The trouble with retirement saving

The problems with saving for retirement are inflationary pressures, most people begin work in their 20s and reach retirement age at around 65. For most people, that is around 40 years in the workforce paying tax and contributing to the economy.

If you are saving 10% of your salary from your early years in the workforce then that 10% in 40 odd years time won't look so attractive. Sure the benefits of compounding start to kick in, that last decade in the workforce is when you need to really dump the maximum funding in your retirement account to benefit.

The real challenge then for governments is to provide the incentive to attract people to save easing the burden on the pension system. The pension is not a right, your tax paid goes to health, transport, defence, utilities and just about every essential service. Governments unfortunately don't plan long-term, they follow the three year election cycle of short-term decision-making.

A percentage of your tax paid does not go to a retirement account invested in government services run at a profit for stakeholders. You could pay tax all your life and not qualify for the pension system, you are self-funded until your assets decline in value below the threshold and you may receive a part pension.

The strategy then if you are in a financial position to do so is retire the moment you qualify to self fund and enjoy your early retirement while you are hopefully healthy and active enough to enjoy it. At this point all you have to do is support yourself for 7 years and then draw on the public pension if you so desire. For me, I don't like that option as I don't want to rely on a government with an ever increasing welfare burden.

Based on contemporary data, the average lifespan of Australians is 82 for men and 84 for women. Based on this information, the majority of health issues arise at around age 80 so retirees should travel and partake in as many activities early in their retirement as lifestyle and the ability to partake in activities incrementally declines with increasing age.

However, we all know most governments are somewhat reckless with public money. Governments like to spend big to get in favour with voters and when they look like losing power they spend more to bribe the electorate with taxpayers money. Then they needn't worry about the payments, that will be the problem of the incoming government.

Now that as a nation we have a large pool of retirement savings, the prudent long-term decision would be to encourage current workers (taxpayers) to self fund their retirements through tax incentives. However, how governments really work is to spend big to retain power then tap into the large pool of retirement savings through increased taxes to fund their election promises.