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Dr. Mark Sinclair
Dr. Mark Sinclair, Mentor Education

Gen Y Financial Outcome Looks bleak.

5 November 2013

The UK Social Mobility and Child Poverty Commission this month has released a sobering warning for Gen Y’s – that they face a lifetime of debt.

The Commission that monitors the progress of government and others in improving social mobility and reducing child poverty in the UK has expressed great concern over the mass amount of graduate debt, lack of housing finance and job insecurity that the ‘have it all’ generation will face.

The findings of the commission have significant relevance to Australian Gen Y’s Australian commentators have suggested. The average life expectancy for those born in Australia in the early 1980s is approximately 20 years’ longer than life expectancy at the turn of the 20th century meaning that Gen Y’s will have more years of life to finance. With a longer life expectancy a recent report by Deloitte argues Gen Y’s need to start retirement planning much earlier with the report finding that males aged 30 need to be saving 5.4 per cent more of their salary than they currently are; and females need to save an additional 7.5 per cent to account for the fact they live longer.

Currently Gen Y’s can contribute up to $25,000 per year in total to their superannuation fund without paying additional tax. So someone on a wage of $60,000 can contribute $19,450 in addition to the $5550 paid by their employer. However most young people on a salary of $60,000 are not in a position to be putting additional money into super, especially if they are in casual work with no employer contributions being made.

So if they can’t save more now with the increasing cost of housing, rising cost of living and the stress of paying back HECS debts what other options will Gen Y have in retirement?

Deloitte has suggested: looking at purchasing a lifetime pension, or annuity, using superannuation savings guaranteeing a defined amount of income for each year of life; it has been suggested that if they own a home when they retire, they could buy a reverse mortgage that allows them to access a line of a credit using the value of the house as security (but, many Gen Y’s will struggle to ever own homes, or have paid off their debt completely in order to qualify for a reverse mortgage in the first place); the third option is to take a superannuation lump sum and then live off the aged pension – with a maximum rate of $19,000 year! The final option to Gen Y’s seems unfortunately to delay their retirement. Currently the retirement age is 58 years for men and 50 for women

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