Published by The Grey Nomad Times, Thursday 3 October
“People try to put us down, just because we get around.” Roger Daltrey was singing about Baby Boomers in 1965, but the The Who’s lyric could equally apply now that the Boomers have grown into grey nomads. People will tell you to feel guilty that you’re ‘spending the kids’ inheritance’ on caravans and holidays. But this guilt is misplaced.
A Grattan Institute study shows that most retirees in Australia do not draw down on their savings. Indeed, many are net savers through much of their retirement.
The result is that a lot of money is getting left as inheritances. The average estate is around $500,000, and about 20% of estates have more than $1 million. And inheritances are getting bigger: they’re growing at about 2% above inflation on average each year. In other words, older Australians are generous to a fault when it comes to helping their own children.
But where the next generation has a justified grievance is the costs of the tax breaks that support the build-up of these nest eggs. Your superannuation gets special tax treatment – a flat 15% tax on the way in, and no tax at all on earnings once you’re retired, except on very
large balances.
These tax breaks, combined with refundable franking credits and the Seniors and Pensioners Tax Offset, have resulted in the share of households over 65 paying tax almost halving over the past two decades. Older Australians now pay on average about half as much income tax as younger households on the same income.
Many of these tax benefits were introduced in the past 20 years and their generosity is now starting to bite: the cost is a growing tax burden on working-age Australians. Younger Australians have always supported services to older Australians through their income taxes, but the size of this transfer is much bigger now and growing quickly.
Some of these working-age households will be the ones benefiting from generous inheritances, but they are unlikely to receive the benefit when they are saving for a house or trying to raise a young family.
More than 80% of money passed down from parents goes to people aged 50 and older. And poorer young people are the least likely to benefit. The wealthiest 20% of Australians receive 38% of inheritance money; the poorest 20% get only 8%.
Helping the next generation doesn’t mean scrimping to leave your kids a huge inheritance. The best thing retirees can do to help all young people is to support a winding back of the unprecedented tax breaks that are squeezing all young people now.