It’s a shame money doesn’t buy happiness, because from a financial perspective the future looks bright.

Treasury released its latest intergenerational report this month and it makes for fascinating reading. With the luxury of a 40-year outlook, the report lifts above the distraction of day-to-day noise. Instead, it analyses the macrotrends that will drive the economy and the retirement income system in the long-term.

Super to play a bigger role

The Australian super system is already the fourth largest in the world, and it hasn’t even reached maturity yet. In about 20 years people facing retirement will have contributed 9% or more of their salary every year of their careers.  As the super system matures, reliance on the age pension will reduce and it will behave as a supplement to maintain standards of living where required.

With the super guarantee increasing to 12% of salary per annum, we expect to see the super system continue to grow for decades. By 2063 it is projected to grow from 116% of Australian economic output to 218%.  That will make it difficult to find quality Australian assets to invest in, so super funds will increasingly be looking at opportunities abroad.

Homeownership and retirement

The falling rates of homeownership amongst Generation Y will have long-term impacts on the retirement system and change the nature of how money is withdrawn.  Owning our home outright in retirement provides much-needed stability, security and peace of mind.  We expect that more Australians will retire with active mortgages and they will access more of their super to extinguish them.

Robust growth outlook

Australia has enjoyed an extraordinary period of prosperity in recent years.  Like most other advanced economies, the growth outlook for the next 40 years is slower than what we’ve experienced in the past 40. That said, the economy is still expected to grow by an average of 2.2% per year after inflation.  By 2063 real incomes are projected to be 50% higher and the economy is projected to be around 2 ½ times larger than today.

The Easterlin paradox

But that doesn’t necessarily mean that life will be better in 40 years.  In the past 70 years real incomes in the United States have tripled. Yet economist Richard Easterlin found that the trend in happiness has been flat or even slightly negative over that same period. 

The fact is that people get used to having more income and higher living standards over time.  Slowly getting richer with everyone else doesn’t make you happy.

At When Financial Solutions we can reduce your financial stress and improve your financial well-being.  But better still, we can help you use your money to stay connected with the people you care about most and engaged in the activities and causes you’re most passionate about.

And that’s where true happiness lies.  It’s not a matter of ‘if’ but ‘when’.

This article is general and does not consider your personal circumstances so it may not be appropriate to you.  If you would like advice specific to you, please let us know.