Baby Boomers (born between 1946 and 1964) will officially retire from 1^st Jan 2011 and why your taxes will go up from next year

When people get older, they retire and stop paying tax. In Australia retirees are now living longer and will mostly run out of their own money and rely on government age pension at some point of time.

But what spoils all the fun for retirees is that there are not enough tax paying ones around because the plan was always that retiree benefits were to be funded by taxpayers of the day.

This is only possible if more people enter than exit the workforce, but from next year workers exiting the workforce will increase because the first wave of baby boomers turn 65.

Benefits of borrowing in SMSF     Page 1            Page 2 

If you are an accountant and want to mail out the flyer to your clients  contact printer here  

There is an easy solution, instead of making new tax paying babies, who will consume limited health and training costs and wait for them to grow for 25 years before they pay any tax, we can simply decide to import ready made migrant taxpayers in skill shortage areas, so that there is a constant supply of workforce who will pay tax.

The only problem is that imported workers will also one day grow old. This can be fixed by bringing more workers later, like a Ponzi scheme, get extra imported workers to support retirement of earlier imported workers.

Another interesting fact is from year 2030s onwards, workers will be increasingly self-funded because their employers have been paying into compulsory superannuation from 1992, which they will be able to dip into before being eligible for age pension. By then all baby boomers would have already turned 65.

But we have a problem over the next 20 years. The question is how do we fund the retirement of 4.5 million boomers when to date the most we've ever had to cater for in any one generation is 2.5 million?

It is evident that we have limited solutions; either generation X and Y agree to pay more tax or we import more taxpayers or we will have no choice but to push the Government age pension age from 67 to 75 and hope fewer becoming eligible (drop dead before applying).

Another challenging option is if we can find a way to encourage older workers to remain in the workforce, say for another 5 years and continue to pay tax. This may be possible if incentives are given to employers to keep the boomers going.

I am not convinced that Australians fully understand the situation we are now in. High spending by current and previous governments has always been a problem. I may be the only taxpayer who framed his GFC $800 stimulus cheque in mint condition instead of spending and stimulating the economy. I think the cheque will have higher antique value in 2030 when the future governments will run out of money to pay for anything leave alone, age pension. The fact that only 22 years back, in 2008, the

My other half reminds me that my prediction of gloom and doom may never happen as Australia is a lucky country and has a waiting list of young migrants. That means that future governments will be able to sell itself to those who will be happy to pay tax for next 30 years and this can continue for ever as long as we support our infrastructure.

This means that, I should stop complaining about the fact that governments should be saving tax income instead of spending over the next two decades, budgets need not be in surplus.

Remember only one of two things are possible; direct tax dollars to nation building by training costs such as funding universities and building infrastructure or make better provision for the acute healthcare needs of frail and aged baby boomers up to late 2030s.

There is another option: PAY MORE TAX from 2011, including making pension funds taxable.

The key to winning is to inject more new money today in superannuation for tomorrow's retirement to be self funded and cross your figures (and toes) for positive high returns each year.

It is clear, your avatar, the Pandoran Na'vi, is against GFC, halved contributions, his weapons are self managed and borrowing and the mission is to "survive retirement without age pension". The game starts on 1^st Jan 2011.

Click here to read ATO website for SMSF borrowing new rules.

Manoj Abichandani SSA SSAud
SMSF Specialist Advisor
SMSF Specialist Auditor