90 seconds at 9 am: Retirement at 69?

Commodity prices rise; Fed official wants new policies; IMF warns Japan and China over lagging reforms; call for German retirement age to rise to 69; UST 10yr yield at 1.54%; oil prices up again, gold up; NZ$1 = 72.2 US¢, TWI-5 = 75.2

16th Aug 16, 7:26am by David Chaston

Here's my summary of the key events overnight that affect New Zealand, with news there are calls for the retirement age to be raised to 69.

But first, on Wall Street today stocks are higher on the back of a rush for commodities and raw materials.

Central bankers and governments must come up with new policies to buffer their economies against persistently low interest rates that threaten to make future recessions deeper and more difficult to avoid, a top Federal Reserve official said overnight. He made two suggestions: either set a higher inflation target, or target nominal GDP levels.

Japan's economic growth sank to just +0.2% which is almost a halt in the June quarter after a strong expansion of +0.5% in the March quarter. Weak exports and and weak capital expenditure are behind the weakness. The IMF issued economic warnings for Japan in its annual assessment of the country's economy. It called for major labour market reforms.

The IMF also issued a warning to China, pointing to the risks of their unsustainable credit growth, and risks they have by supporting loss-making state enterprises.

In Germany, they have a plan to raise their retirement age to 67 by 2029 - in just 13 years. But overnight the German central bank said that this is not enough. (See p.10) Young Germans should expect to have to work until they are 69 if the current German pension benefits are to be sustainable, they said.

In Australia, calls for some sort of public inquiry into bank behaviour just go on and on. Their government is not keen on the Royal Commission that has been called for, but the drum-beats seem to be getting louder. Efforts are now underway to split off some government MPs to support the move for such an inquiry.

In New York, the UST 10yr yield is a little higher today at 1.54%.

The US benchmark oil price just keeps on rising and is now just under US$46/barrel and the Brent benchmark is just under US$48/barrel. The new higher prices are boosting the position of producers, especially Russia. They are also opening up more fracking wells.

The gold price is also up marginally and now at US$1,340/oz.

The Kiwi dollar will start today slightly higher too against the greenback at 72.2 US¢, at 93.9 AU¢, and at 64.5 euro cents. The TWI-5 index is still at 75.2.

If you want to catch up with all the local changes yesterday, we have an update here.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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33 Comments

by Roger Witherspoon | 16th Aug 16, 7:59am 1471291196

Is the SDR the new Eurodollar? Is it the next super-liquidity creator, but under the central banks' control?
http://www.worldbank.org/en/news/press-release/2016/08/12/world-bank-ap…

by Stephen Hulme | 16th Aug 16, 11:16am 1471303002

Interesting, but the size is minuscule compared to historical Eurodollar credit creation values.

I guess, since RMB payment is accepted this is another credit wrapped way of allowing local Chinese banks to source off-balance sheet currency swapped domestic funding while the World Bank sub will in turn get sub-libor USD financing via receipt of the basis. But since I am bereft of current RMB/CNY basis quotes I could be talking rubbish. But this type of artifice is certainly reality in NZ.

by Roger Witherspoon | 16th Aug 16, 11:17am 1471303035

Presumably it's a trial. The suggestion is that including China in the SDR basket allows central bankers as a whole to create money in the form of SDRs as and when required, thus providing liquidity/inflation whenever they see fit. It may be nothing or it may be the trial of a big bazooka.

by xelnaga | 16th Aug 16, 8:05am 1471291546

I predict the retirement age will be raised to 69 the day after the last boomer retires.

by Kakapo | 16th Aug 16, 8:28am 1471292916

That one's a total no-brainer.

by frazz | 16th Aug 16, 8:43am 1471293836

Yes the boomers will pull that bridge up behind them for sure, probably blow it up as well

by ham n eggs | 16th Aug 16, 8:49am 1471294158

theyre more likely to sell it off

by Jugalug | 16th Aug 16, 9:03am 1471295001

As a boomer myself, I face a dilemma when it comes to staying in the workforce. Do I stay, and pose an obstacle to a millennial getting a foot on the ladder? Or do I retire, drawing on my life savings - and add to the exodus of investment $$ out of super schemes? (This year is projected to be the first when withdrawals from managed funds will exceed new contributions.) I am open to sensible suggestions.

by kiwichas | 16th Aug 16, 10:41am 1471300883

Depends whether you still enjoy the work; you need to have an idea of what to do in retirement; you can lose your job and your mojo along with it.

by kiwimm | 16th Aug 16, 1:13pm 1471310004

Put your money into a business that employs people. That way, you have something to do, an investment that makes money and you can employ some younger people. Depending on your desire to work, you can be a hands-off owner and pay someone to manage or you can manage yourself.

by imhenry | 16th Aug 16, 9:25am 1471296353

This comment about raising the age of retirement to 69 is just scare mongering as is usual.
People should be aiming to retire at age 60 (voluntarily and financially)
If the age of eligibility was raised to 69 more people would be going on Sickness benefits and the like.

But as the PM has stated the increase in age will not happened on his watch. Look what happen the last time the age was increased from 60 to 65.

by PeakEverything | 16th Aug 16, 9:43am 1471297397

The issue is whether low income workers will ever be able to retire at 60. Even now I see elderly people working as checkout chicks presumably to top up their pension. A lot of people on this site will be able to retire early but don't forget passive income only works if you have enough low skilled workers actually doing the required work.

by Country boy | 16th Aug 16, 10:06am 1471298773

Haha. The boomers raised the retirement age 5 years to 65 and cut their access to the child support. Sure its more than your generation will ever do.

by dictator | 16th Aug 16, 11:22am 1471303326

All the generations after the boomers are forced to save for their retirement. More than what most boomers have done. The younger part of the population didn't set up superannuation as a ponzi scheme (which is something that needs urgent correction).

by Jugalug | 16th Aug 16, 3:22pm 1471317724

A lot of 'boomers have used mortgage repayments as their preferred form of retirement saving. With the recent entry of China into the globalised economy, that investment in the family home has paid off handsomely. The tricky bit is how boomers can cash up their capital gains at 60+ without dying of boredom in a small town. Supermarket checkout work appears to be one option, at least in Tauranga.

by kiwichas | 16th Aug 16, 12:12pm 1471306321

I can't retire yet, still have to pay taxes for millenials' education, bridges, lattes , phones and air travel

by murray86 | 16th Aug 16, 12:48pm 1471308488

Looking at all the commentary here which tracks with all the previous articles on this topic, I can't help but think we are all missing the underlying point. True the cost of retirement for individuals and Government is increasing, and the BB peak is in about now(ish) so that cost should actually begin to decline. But what is missing is the point that buying into the Free market economy, Governments have created too many opportunities for individual incomes of most to effectively decline, thus reducing their ability to contribute to their own retirement income, and those same free market economies have allowed the wealthy and the corporations to avoid paying their share of taxes, thus reducing the Governments abilities to provide for their own populations as per their social contracts with them.

The question is how do we change it? Working older people, irrespective of which generation into the grave is too much like slavery, and ultimately not positive nor constructive for societies.

by dictator | 16th Aug 16, 1:06pm 1471309592

Actually peak retirement people won't happen for about another 27 years. It's not the baby boomers but all their kids in Gen X as well that will hit retirement age. The retired population and burden on the economy will be considerable without significant retirement savings.

One thing that will happen is more people will retire much later. There will be a benefit from people continuing to work past retirement age with their spending. I think the idea of retiring will only be for those that saved enough and the remainder will work until they are unable to continue working. It's not slavery but survival.

It's not too late for Gen X to save enough to retire and have an ok-ish lifestyle. There are a number of boomers who have found themselves with insufficient savings with retirement age rapidly approaching. Attitudes will change, and no by choice.

by IT GUY | 16th Aug 16, 2:18pm 1471313882

big assumption that there will still be enough jobs to go around, In Tauranga the oldies are in pak n sav stacking cans etc

by dictator | 16th Aug 16, 1:00pm 1471309230

You probably need to make a decision on prioritising your retirement savings and boot your kids out of home.

by Justice | 16th Aug 16, 12:49pm 1471308565

That's why X,Y&Z better start getting out and voting for their future interests asap and claw back

by BadRobot | 16th Aug 16, 6:02pm 1471327356

While true - at some point the X,Y & Z will out number the Boomers - and then may come their revenge......

by dictator | 16th Aug 16, 6:33pm 1471329231

There's no point behaving like a boomer and harming them. Instead we will need to help them humanely.

We should first help ourselves by voting for a fiscally responsible Government.

by Ms de Meanour | 16th Aug 16, 4:06pm 1471320416

Didn't anybody at all in this entire conversation notice that the proposal is to raise the retirement age in Germany? Where their pension system is completely different from New Zealand's.

by muntijaqi | 16th Aug 16, 9:29am 1471296585

Usually when talking about life expectancy to justify delayed retirement the years keep decreasing not necessarily because of people having a longer and healthier life but because less children die and that pushes up the numbers.

Do people really live longer than 40 years ago if we don't consider early deaths?

by David Chaston | 16th Aug 16, 10:09am 1471298977

In 1975 (about 40 year ago), when you reached 65 the StatsNZ "period life tables" showed that you could expect to live for 13 more years on average (ie to age 78). For women, add 4 years.

The latest "period life tables" from StatsNZ show 65 year olds can expect to live another 19 years, that is to 84. For women, add 3 years.

I do have an issue with this data; it is based on death records at the time and what we are trying to discuss is "how long you will live". But those still alive should be benchmarked against the living. That is clearly not possible but it does show that the "period life tables" will be underestimating the median life expectancy, and may be by some margin.

As for "quality of life", most people I know in the generation ahead of me have a much improved physical quality of life, certainly significantly better than their parents. The issue now is that the body is lasting far better than the mind and revealing the limits there.

by KH | 16th Aug 16, 1:06pm 1471309583

DC. I am assuming David that when you say you have an issue with the data you mean it is historical ? And that if we are projecting into the future life expectancy is likely to be higher than shown above ? And that would be because it is consistently increasing as it has over the past few decades ? Correct ?
2. Your comment that the body is lasting better than the mind. Never heard that observation before. What makes you think that.
Generally I think that most of the concern about numbers in ageing dependency is alarmist. It can be dealt with. While our health issue that eventually takes us all out is never fun, most people die without the need for extended care provision. It's a minority that enter 'care'

by Stephen Hulme | 16th Aug 16, 11:12am 1471302720

This wasn't supposed to happen. The central banks of Australia and New Zealand lowered benchmark interest rates and their respective currencies promptly strengthened.

Traders puzzled by the way foreign-exchange markets are behaving should consider that potential for capital appreciation, in addition to yield, may be a significant driver of recent moves.

Investors are engaging in a type of 'reverse carry trade,' buying low-yield currencies for high-yield pairs and accepting small interest rate differential losses for potential large capital gains where central banks are cutting rates or buying more domestic bonds. Those moves should push up the price of underlying assets and, in theory, outweigh small losses on interest rate carry.

Yield remains a deciding factor for investors, but currencies with potential capital gains to complement yields will likely be the most sought. This trend would help explain flows following recent rate cuts across the Pacific, with the Reserve Bank of Australia and Reserve Bank of New Zealand being the most prominent examples. Read more

Foreigners have already picked up a significant amount of outstanding NZGS, so I suppose it's down to corporate and Kauri etc issuance.

Nonetheless, it's the citizens that pay the higher than current yield legacy bond coupons for many years to come that are being capitalised today in a falling interest rate environment.

by Stephen Hulme | 16th Aug 16, 9:27am 1471296471

Japan's economic growth sank to just +0.2% which is almost a halt in the June quarter after a strong expansion of +0.5% in the March quarter.

Economic growth indicators came to a halt a while back. View graphic evidence

by head_down_bum_up | 16th Aug 16, 1:13pm 1471310025

Can we just put the boomers on to a boat and float it out to sea?

by IT GUY | 16th Aug 16, 2:26pm 1471314378

lots of them go on cruise boats , its big business

Sooner or later they have to sell property if they want to downsize , welcome to japan

by head_down_bum_up | 16th Aug 16, 2:22pm 1471314157

Yeah but the boat almost always makes it back to NZ shores.

by BadRobot | 16th Aug 16, 6:04pm 1471327463

Bugger....