So far this year, share markets have experienced two episodes of sharp volatility with steep falls recorded in January to March (-6%) and October (-8%). The latter wiped out all share market gains for the year-to-date.

During periods of volatility it can be hard to remember that share market fluctuations are normal and to be expected. This video aims to provide investors with a sense of perspective.

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Jeff Gebler
(Senior Consultant at Milliman)

Some older Australians may be better off diverting savings towards home ownership rather than superannuation, according to research from Milliman.

A retiree renting a one-bedroom unit in Sydney would require more than $500,000 in extra superannuation savings to fund the same lifestyle as a home owner, according to new Milliman research.

The findings form part of the latest Milliman Retirement Expectations and Spending Profiles (ESP) report, which compares six retiree profiles against a 'Nationwide' profile (benchmarked to the top quartile of expenditure). The data is based on the real-world expenditure patterns of 300,000-plus retirees.

The analysis shows that a 65-year-old 'Urban Renter' retiree is forced to spend approximately $15,000 a year more than the Nationwide retiree, with nearly half of their budget allocated to rent (even after Centrelink Rent Assistance).

Figure 1: Urban renter: how much super do I need? 

Source: Milliman Retirement ESP 2018 Q1

While retirees spend less on most categories of expenditure (except health) as they age, rental costs tend to continue rising. By age 85, urban renter retirees are spending more than $20,000 a year above the expenditure of Nationwide retirees who own their home.

Retired urban renters are also hurt by policy settings which favour homeowners. Renters receive relatively low levels of subsidy (Centrelink Rent Assistance) while the often-substantial value of the family home is exempted from the Age Pension means test.

The unfortunate result is that the urban renter retiree requires more than $1 million in super to sustain their expenditure to female life expectancy with 95% certainty (assuming an investment in the average balanced super fund investment option1). This is more than $500,000 above the amount required by the Nationwide retiree.

These forecasts are based on Milliman's sophisticated stochastic modelling assessing thousands of scenarios across a balanced investment option including variations in returns, inflation, spending drawdowns and the impact of the Age Pension.

One-quarter of retirees are expected to still be paying off a mortgage or renting in retirement, according to the Productivity Commission.2 Recent trends of declining home ownership suggest an even greater portion of future retirees will face higher housing costs in retirement.

The government's recently launched First Home Saver Super Scheme is aimed at making housing more affordable by allowing people to save for a first home inside their super fund, where contributions are concessionally taxed. However, the scheme, which is capped at $15,000 annual contributions over two years, is not expected to make a major difference to home ownership levels.

Other policy changes have been proposed by the Labor party such as changes to capital gains and negative gearing concessions for home owners.

While saving for retirement is important, the Milliman analysis reinforces the importance of quality financial advice tailored to individual's personal circumstances and goals.

It also underlines the importance of super funds delving deeper into their membership to understand their circumstances before offering general advice. In some cases, older Australians may be better off diverting savings towards home ownership rather than superannuation.

The Milliman Retirement ESP can help super funds and financial advisers to understand their members and clients by modelling their likely future behaviour and expectations based on hard data.

Money and Life
(Financial Planning Association of Australia)

So you've finished your degree now what? With more Australians taking time to study for longer, find out if the benefits to your career and earning potential could be enough to make it worth investing in a postgraduate qualification.

Starting your working life with a sizeable HECs debt might not be the best thing about studying for a qualification in Australia, but it's definitely not deterring young people from continuing with their studies after high school. Figures published by the Australian Bureau of Statistics in 2016 showed that nearly two thirds of Australians have completed a university degree or apprenticeship[1]. And what this is leading to is a rise in educational standards demanded by employers in many industries.

So perhaps it's not surprising to learn that in 2017 more than 20% of graduates went on to do additional full-time study or research instead of entering the job market straight away[2]. And given the growth in overall postgraduate enrolments in recent years, it seems postgraduate study is also a priority for mid-career professionals too. In the five years to 2017, there has been a 46% rise in the number of people with postgraduate degrees and a 123% increase since 2006[3].

Resisting the wage slump

So what can postgraduate students hope to gain from continuing with their studies at uni? In terms of earning potential, wage growth for workers with postgraduate qualifications definitely puts them ahead of the pack. In the four years to 2018, wage growth in Australia has been flat, even though unemployment figures have been reasonably stable. The Wages Price Index (WPI) for the year to April 2018, for example, rose by just 2.1%[4]. Compare this with wage growth figures for postgraduate qualified workers collected in the 2017 Graduate Outcomes Survey and the picture looks much rosier. Full-time salaries for postgraduate coursework degree holders rose by 12.5% over the three years to 2017[5], an average of just under 4.2% per year.

You might think this compares pretty favourably with the rest of the working population. But looking at how salaries have grown for postgraduate research degree holders in the same period, our coursework graduates might feel quite hard done by. For workers with a PhD or Masters by research, the median increase in salary over the three years was a whopping 24.8%[6].

The value of research skills

If these figures are anything to go by, not all postgraduate students can expect the same return on investment from their extra study. In a job market where creativity, critical thinking and problem-solving are highly valued, it seems a research degree may be giving postgraduate qualified candidates the edge for employability and earnings. A recent research project from the Australian National University (ANU) and CSIRO has backed this up by showing just how many employers are on the lookout for strong research skills. The project team created a search engine to analyse content from thousands of ads supplied by job search company SEEK. The engine found that over half the jobs advertised required research skills, even though many did not expect candidates to have a PhD.

"The PhD was originally designed to train the next generation of academics, but most graduates today find jobs outside of academia," said Dr. Will Grant, one of the lead researchers on the project. "The machine found a large hidden job market in Australia for people with PhDs, with half of the job ads scanned specifying the need for a high level of education, including research skills[7]."

Making sure it all adds up

Your future earning potential is just one part of the equation when it comes to deciding whether to invest your time and money in further qualifications. Making sure you can cover living expenses while you study is important, as financial stress can become a major distraction. Taking some time to plan how you'll finance your next career move, whether it's studying or starting a new business, can help you enjoy the transition and have more confidence in your future.

Thinking about getting your next qualification? Discover why investing in yourself is important and how you can go about it.

[1]ABC News, Why top companies are ditching degree requirements for some jobs, Joshua Krook, 18 April 2017, "At the end of 2016, the Australian Bureau of Statistics (ABS) revealed close to two-thirds of all Australians had completed a degree or apprenticeship."http://www.abc.net.au/news/2017-04-18/why-top-companies-are-ditching-degree-requirements-for-some-jobs/8449236

[2]Council of Australian Postgraduate Associations, Media Release: Postgraduates get a raw deal despite top graduate outcomes, 12 January 2018, "The Graduate Outcomes Survey also established that 21% of those with undergraduate qualifications opted to go on to full-time postgraduate study immediately after graduation."http://www.capa.edu.au/media-release-postgraduates-get-raw-deal-despite-top-graduate-outcomes/

[3]The Australian, Battle for jobs triggers postgraduate surge, 23 October 2017, Tessa Akerman, "Competition in the job market has pushed Australians into further education like never before, with a 46 per cent jump in the number of people with postgraduate degrees over the past five years and a 123 per cent increase since 2006."https://www.theaustralian.com.au/higher-education/battle-for-jobs-triggers-postgraduate-surge/news-story/edfa72a58f9fc9283482e7e1fc687be8

[4]ABC News, Australian workers continue to see wage growth mired near historic lows, Stephen Letts, 16 May 2018, "On seasonally adjusted basis, the Wage Price Index is up only 2.1 per cent over the year"http://www.abc.net.au/news/2018-05-16/wage-price-index-march-quarter-2018/9766438

[5]Graduate Outcomes Survey 2017, "Median full-time salaries for postgraduate coursework degree holders rose by 12.5 per cent between 2014 and 2017"https://www.qilt.edu.au/about-this-site/graduate-employment

[6]Graduate Outcomes Survey 2017, "Median-full time salaries for postgraduate research degree holders increased by 24.8 per cent between 2014 and 2017"https://www.qilt.edu.au/about-this-site/graduate-employment

[7]http://www.anu.edu.au/news/all-news/machine-learning-uncovers-large-hidden-job-market-for-phd-graduates

Marnie Banger
(Australian Associated Press)

Australians are expected to dig further into their savings this year as they increase their spending faster than their income is growing, according to the head of Treasury.

Treasury Secretary Phil Gaetjens shared the forecast with senators at an estimates hearing in Canberra on Wednesday.

Mr Gaetjens noted the number of Australians with jobs is rising, helping people to feel more optimistic about the economy.

However, he said wage growth and inflation continued to be subdued.

Incomes are expected to pick-up gradually, leading to more spending, which Mr Gaetjens said should provide a boost to economic growth.

But he doesn't think income growth will keep up with people's spending this financial year.

"As growth in consumption is likely to continue to outpace income growth in 2018-19, the household saving rate is expected to decline further," he said.

His comments come after national accounts data released in September showed Australia's household savings rate fell to 1.0 per cent in the June quarter, down from 1.6 per cent in the three months to March and 2.5 per cent from last June.

That came as the Australian economy had grown at its fastest pace in nearly six years, expanding by 3.4 per cent over the 12 months to June.

Mr Gaetjens said the drought is among the greatest risks to the domestic economy at the moment, due to its likely impact on the agricultural sector.

Tightening credit conditions which make it more challenging for people to get loans may also constrain how much people spend and invest, he said.

Looking beyond Australia, Mr Gaetjens said Treasury was keeping a keen eye on increasing uncertainty and unpredictability in trade policy.

Such tensions, stemming from trade tariffs imposed by the United States, recently contributed to the International Monetary Fund lowering its growth forecast for this year.

"The potential for further escalation remains and this could negatively impact global growth, especially if confidence is affected," the Treasury boss said.

Photo by Fabian Blank on Unsplash 

The ATO has released the latest figures on lost and unclaimed superannuation accounts. The data has been broken down by postcode and issued via national and state media releases.

For latest figures and how to search for lost super click here.