Would you leave your kids an inheritance?

Ross Greenwood speaks to Karen Rees, from National Senior Australia, about how seniors are using their retirement income.

Would you leave your kids an inheritance?

Ross Greenwood:  Great to have your company here on work-life money right across Australia. What older Australians and aging Australians do with their money is vital, not only do their own outcomes in life but also to their families because quite clearly, many of the younger generation these days with high house prices ultimately in their own back pocket will always consider, well, once their parents die, if the house is their, we might have something for ourselves. But this almost intergenerational battle.

In other words, do the parents outlived their money and leave the kids nothing or do the parents go without to leave the kids something, maybe even during their time when they’re alive? It does work and of course, different families have different circumstances, but the pressures will always be there. There’s no doubt. Now off the back of this, the 2017 National Seniors Australia survey basically suggests that seniors are becoming smarter about their retirement incomes and are less inclined to give more of their savings away. Their hard-earned as it were, to their kids. Certainly, well in advance of their own death. Let’s now go to Dr. Karen Rees, research fellow at the National Seniors Australia who’s on the line. Many thanks for your time Karen.

Interview with Karen Rees, National Senior Australia.

Dr. Karen Rees: Thank you for having me, Ross.

Ross Greenwood:  Look, this is a really interesting study, because it is the ultimate generational battle, but what you’re suggesting now is people are getting a little smarter and suggesting that they are understanding they need to hang on to their funds as long as they possibly can simply because they may need it very much in their later life.

Dr Karen Rees:  Exactly. It seems to us from this survey that seniors are savvy about longevity risk, which means that they understand that they may live quite a long life, and need to plan for that in various ways including financially, health and medical costs, all sorts of things.

Ross Greenwood:  There’s a strange parallel to this, and that is while the seniors are starting to understand, they need to hang on to their money. I wonder whether their kids conversely understand that their parents need to hang on to their money because right now, we often hear of the so-called bank of mom and dad when young people can’t afford a home and they’re even being told by the treasurer amongst others that they’ve got to dip into the bank of mom and dad. But the problem is ultimately, that could mean that the parents have a less well-off period in their retirement, and that’s not necessarily what they’ve saved for during their working life.

Dr Karen Rees:  Well, that’s right. They are putting themselves at risk a lot of the time. We had people tell us that they have helped their children out to get home deposits. They have educated their children well and paid for that, and they do feel that their children have entered the workforce on higher salaries and that now, their money needs to be put towards their own costs, their own essential needs in later life.

Ross Greenwood:  Okay, but because the truth is also these days, given the way that nursing homes especially have massive deposits for people to get set in those nursing homes, that the family home itself again can be a very precarious type of an asset for people to hold. Number one, you may need that home to actually pay down that deposit for the nursing home. If there’s two of you, of course, you can almost double that up.

In other words, if people start to eat the house, or indeed, if there are kids who suddenly take a wedge off the equity out of that home to be able to afford their own home, that can ultimately compromise the type of standard of living again, if nursing homes or retirement homes are needed for those aging Australians.

Dr Karen Rees:  Yes. It’s so important to us. I think people aren’t underestimating the cost of day care as they get older. A lot of people have said to us their home is their one effort. That equity will be needed to fund day care essentially and it’s not going to be there for the kids.

Ross Greenwood:  Have you got any views, Karen, as to why these people are becoming more literate about this problem? Do you think it’s the experience of others, or do you think it’s just this dawning realization that there just might not be enough money? I mean, previously people died threescore years and 10 but these days of course, with the longevity of those people who reached their 80s likely to extend even into the 90s. It really means that retirement incomes have just got to go so much further than before.

Dr Karen Rees:  They do have to go further. It does seem that the vast majority know the stats about longer lifespan and our thinking about it. There were people that said to us they took a hit during the GFC and if they live into their 90s as their parents have done, then they need to be thinking about what to do with their money. Essentially, people have been called out, a lot of them were women. The catchphrase there was, “No money, no plans.” It is essential to be thinking about this if you can.

Ross Greenwood:  The other aspect of this is, even though younger people who are putting in 9.5% compulsory superannuation these days, even that still is not enough for their twilight years. It’s a situation where there is just a lack of money around the place. There’s a lack of money for the housing. There’s a lack of money for the parents and the grandparents. There’s a lack of money for the next generation coming through. It’s just one of these situations, in many cases that older Australians have to learn to live off less, because they have no choice.

Dr Karen Rees:  They have no choice. It seems to me there’s a spin on it about the seniors being stingy. I don’t think it’s bad. I think it’s a necessity. People have said to us, “My super is almost exhausted. I had AUD 17,000 14 years ago. I no longer have any income super left after 12 years.” That kind of thing. I’m trying to plan but I’m female, divorced, limited super small, no wages, no inheritance coming means I will struggle.

I do think there is that element of it being vital that they plan carefully around their spending. I do feel like many of them in that situation that they have contributed so much to their children. I think they feel that when they entered the workforce, they were on their own and their parent’s estates helped them enormously when it came through, but their children are no longer as dependent on that.

Ross Greenwood:  Yet there’s another strange thing, because quite clearly as we started this whole conversation, is the kids need that asset, the actual capital. If they are to get out of what are in many cases horrendous debts that they’ve established during their lives. If the parents now take this attitude will spend the last penny and then drop dead or whatever, or end up on an age pension with no real assets and no real income to go with it. Of course, then the children of these parents have got to start to reassess their lives and the way in which their standard of living is applied, as well.

Dr Karen Rees:  And the way and their attitudes of entitlement over that asset really, and planning as you are working for your own retirement. We do say that with aged care costs that people are needing that money later on. It’s not all about travel. It’s not all about lifestyle. It’s about the care.

Ross Greenwood:  The retirement years that they’ve always been described, which is go and play golf, live on a resort, go and travel around the world, tour around Australia, all that type of thing. It might be in the future, but increasingly even now as people come to the realization that there might not be enough cash, that altogether they’ve got to make compromise and change what is seen to be the idyllic lifestyle in retirement.

Dr Karen Rees:  That’s right. I think people are saying that we’ve just had to change. I think someone put it beautifully to me. I’ve had to downsize my expectation or downsize my lifespan outlook and that kind of thing. Just get used to spending what you have rather than leaving it up.

Ross Greenwood:  Dr. Karen Rees. Research fellow at the National Seniors Australia. Karen, we appreciate your time here on the program today.

Dr Karen Rees:  Thanks, Ross.

Quick links to similar interviews:

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14-09-2017 Interviewed  Stephen Anthony, Chief Economist, Industry Super titled ” Why our retirement savings may be at risk ”.

13-09-2017 Interviewed  Justin and Bec, Trip in a Van titled ” A better way to spend your retirement ”.

05-09-2017 Interviewed  Brenda Perrick, Volunteer, Meals on Wheels titled ” A new way to spend your retirement ”.

04-09-2017 Interviewed  Alan Jones, Formula F1 Driver – retired titled ” Racing to the Finish Line ”.

07-08-2017 Interviewed  Professor Roger Wilkins, Author, Melbourne Institute titled ” Budget pressure to be passed to the next generation ”.

07-08-2017 Interviewed  Martin Fahy, the  CEO of ‎The Association of Superannuation Funds of Australia titled ” How much super should you have at your age? ”.

03-07-2017 Interviewed  Stevan Premutico, founder and chief executive of Dimmi titled ” Founder of Dimmi to step down after 10 years ”.

26-06-2017 Interviewed  Douglas Geekie, Chairman of Probus South Pacific titled ” Probus – Is it for You? ”.

19-06-2017 Interviewed  Dr. Maree Bernoth, Associate Professor of AgedCare, Charles Sturt University titled ” Aged-care facilities need an overhaul ”.

12-06-2017 Interviewed  Peter Kell, Deputy Chairman ASIC titled ” Dangers of SMSF’s pushing people to buy property ”.

12-06-2017 Interviewed  Robert Deutsch, Senior Tax Council,  Tax Institute titled ” Tax tips for the end of the financial year ”.

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