Falling super returns will put strain on marriages: Gottliebsen

The sharp falls sustained by the sharemarket in the weeks leading up to 30 June means that for significant segments of the population now is the time to tell their spouses that life is about to change dramatically.

The sharp falls sustained by the sharemarket in the weeks leading up to 30 June means that for significant segments of the population now is the time to tell their spouses that life is about to change dramatically.

Two of the worst affected groups are the retired – who rely on income from their superannuation funds – and the professionals who have created a lifestyle based around big bonuses. Executives in merchant banks, investment houses, stockbrokers, insurance companies, banks and so forth. These people are the so called “living dead”.

A month or so ago when the index was nudging 6000 it seemed that the downturn would be manageable, but now not only has the market fallen below 5000 but the domestic outlook for the longer term in Australia, the US and Europe looks decidedly bleak.

Those depending on superannuation for their retirement income have been having a wonderful time in recent years because the annual rise in their portfolios has been greater than the income they have taken out. The regular rises in the sharemarket have encouraged more expensive holidays and higher spending than the capital at their disposal warranted.

Now the lower payouts that loom as a result of the market fall are about to coincide with a much higher cost of living.

Businesses like travel agents and domestic tourism facilities will soon feel the pinch as people cut back travel plans and reduce spending to match their new, lower income. People that have retired may even consider returning to the workforce.

In aggregate, the reduced spending from those who are retired will have a large effect on the economy, but the individual effects of the sharemarket slump will be far more pronounced in the other group of “living dead”. These are the executives who have become used to huge bonus payments which they have incorporated into their lifestyle by funding large residences, holiday homes, expensive cars and regular overseas holidays for the family.

They now fear lower bonuses and some even have job security issues. They are called the living dead because most of their thinking is concentrated on their personal problems rather than the affairs of their business. Many have been making mistakes.

I came across the problem back in April when I discovered in conversations between fathers at a top private school that it was clear that bonus-paid executives were secretly unhappy about their wife and children’s 2008 European winter holiday given the likelihood of slashed bonuses. It was later confirmed in discussions with consultants to large companies.

Where retired couples often both have a good understanding of their financial situation, executives had rarely explained the realities of their changed financial situation to their wives. During the May recovery the situation improved greatly and the European holidays must have looked a lot less threatening.

Now the situation is worse than it was in April, because not only has the market retreated but there is a real possibility that we are headed for a prolonged period of discomfort.

When many spouses learn about the new situation there will be anger and recriminations, because the deal has been to trade-off long working hours with a particular way of life.

There will be even greater anger if the holiday home has to be sold and/or the primary residence downgraded. And there are a clutch of solicitors around looking to help executives take a tough line with employers who promised big bonuses but failed to deliver.

This article first appeared on Business Spectator.