Wealth Foundations are Tougher These Days

On reflection, Slack Investor had it relatively easy on his path to financial independence. All he had to do was maintain a reasonable ‘savings rate’ of his net salary – and put these savings into appreciating assets like superannuation, housing, or a share portfolio. This ‘savings rate’ is fundamental to how many years it will take you to reach financial independence. It is worth showing this chart again to concentrate the mind.

Slack Investor’s ‘savings rate’ was, over his disciplined working years, between 20% and 45% and included superannuation contributions. He tried to automate this as much as possible by having deductions from his salary into things like extra superannuation contributions and home loan repayments. There is no doubt that heroic savings rates are now even tougher to maintain.

Paying Back Your Education

For Slack Investor, university education in the 1970’s attracted few fees. Things are different now and most students will carry an increasing financial burden into their working life.

Housing Just Costs More

For a median priced Australian home, it takes over 33% of household income to service a loan. This is the highest level since 1990 – when standard home loans peaked at 17.5%!

It is not any easier in the rental markets either. When comparing national median income with national median rent, the percentage of income spent on rent has crept up to 33%. The 20-yr average is 29%.

The current levels of net migration to Australia may be having an influence on the latest squeeze on rental costs. Macrobusiness speculate that the latest surge in net migration is having the effect of tightening rental vacancies – as demand outstrips supply.

It’s Harder Now – Do not Give up!

Despite the increased costs of living, the young have time on their side – and full access to the world-class retirement scheme of Australian compulsory superannuation. The 12% employer contribution rate since July 2025 gives you a base ‘savings rate’ of 12%. Relying just on this, from the chart above, puts you on track to retirement in 45 years – sounds bad, until you realise this is just the base. Any additions to your ‘savings rate’ will rapidly shorten your retirement track.

The best time to invest was yesterday. The second best time is today. _{Attributed to Warren Buffet}

To own your own dwelling in retirement is important. It may be an apartment, place in the country, or a ‘tiny house’ – as long as it’s yours!

Although complete financial independence is the aim – the next achievable step is the ‘sweet spot’ for superannuation savings where there is maximum ‘bang for your buck’ when you combine your super with the age pension.

Using this ‘sweet spot’, Bec Wilson calculates that a single home owner with super savings of $338 000 combined with the age pension and a part-time job ($7800 p.a.) can have a yearly indexed income of $55 923. For couples who are home owners, the ‘sweet spot’ is a combined $512 000 in super.

For home-owning couples, $512 000 in Super combined with the age pension, that’s $70 760 a year in retirement income. _{Bec Wilson, SMH}

There may be hope on the horizon with some levels of government trying to fix the poor incentives that they have created. Slack Investor would like to see a bit more work by governments on the housing supply side. However, there are positive signs – in the fall of house prices due to recent capital gains tax changes and increases in home loan rates. Also, there has been some meetings between the Labor government and the Coalition to try to find consensus on migration guidelines that will limit our net arrivals number until the housing supply catches up. Slack Investor is always the optimist!