FMA concerned New Zealanders are relying on gut-instinct when planning for retirement

FMA concerned New Zealanders are relying on gut-instinct when planning for retirement

A new government-funded study paints a grim picture of how well equipped our ageing population is for retirement.

A survey released by the Commission of Financial Capability (CFFC) and Financial Markets Authority (FMA) shows only 10% of people over the age of 50 are certain they have enough money saved or invested to enjoy the lifestyle they want when they stop working.

Of those already retired, a quarter say they don’t have the money to do the things they want in their retirement.

The findings come from a survey Colmar Brunton did of 1,052 people over the age of 50 between April 10 and 22. Respondents were weighted for age, gender and income to represent New Zealand’s demographic spread.

The study also found almost half of people over 50 are yet to figure out how they’ll reach their retirement goals, while 40% of those who’ve already retired say they did so without a financial plan for their retirement.

Among those approaching retirement, 54% say they have some form of financial plan. However the degree of planning is varied, with only about a quarter having planned thoroughly.

Forty-two percent of non-retirees have calculated the regular expenses they would need to cover, and 34% have worked out how much they would need on top of NZ Superannuation to give them the lifestyle they want.

CFFC general manager of investor capability, David Boyle, says it’s encouraging to see some of those approaching retirement doing some planning, but many are leaving their plans to the last minute.

“There is also a big gap between the reality of lifestyle in retirement and the expectations of the over 50s age group in reaching their goals”, he says.

“At 50-years-old, when you have potentially 15 years to go before you stop working, there’s still time to make a big difference to your lifestyle choices in retirement.”

The experience of those who have already retired shows that while 28% have enough money to do all the things they want, 25% are just getting by and managing the basics.

The survey found retirees who have some form of plan for their retirement are far more likely to enjoy the kind of lifestyle they want.

When it comes to investment risk the overwhelming majority, 83%, say higher risk investments are to be avoided, while 71% say that people should generally choose more conservative investments.

However only 24% of those surveyed have ever used a risk profile tool to help them think about what level of risk is appropriate for them.

FMA director of primary markets and investor resources, Simone Robbers, says these answers indicate a gut-instinct approach to retirement planning rather than well-informed decisions.

“We can see that if people take time to make a plan, they are generally more likely to choose a more diversified range of investments.

“It’s essential for people to find out what kind of investor they are and to diversify their investment choices appropriately. That’ll help their investments grow, spread risk and leave them well placed for a better retirement.”

Robbers and Boyle agree that with so many people now accumulating wealth in KiwiSaver – and other investments – towards their retirement, it’s critical they get hold of the information and tools needed to help them make smarter investment choices. They say www.sorted.org.nz is a great place to start.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Buy all the houses. Prevent more from being built. Rent them to the kids. Sell out to the Chinese. It's the most popular kiwi retirement plan.

Great plan alright. See it all the time unfortunately and you can't persuade people to get advice and diversify their asset base.

Well where is there an alternative offering sky high returns? Businesses making real goods is a risk, a struggle without "keen" buyers and it takes effort. Housing? No effort really, buy and sit back and wait. Now sure there is risk there but is it any worse than trying to start and run a business making a good for years?

Business, as you mention, is about risk and takes effort. That's why it's worth doing, rather than just worrying about the current price of a house.

Making it harder to buy a house with increased deposit req and prices driven by wholesale overseas selling means less kiwis with a freehold house by retirement. And more older kiwis with large mortgages still to pay down at retirement. Is this intentional?
The best and first preparation for retirement is a freehold house. It will ride out all the ups and downs of the financial turmoil.

Too simplistic in my view. You can't 'eat' or 'decumulate' the house you live in at retirement whether it is freehold or not. You need real investments. Seeing a house as an 'investment' is a trap we have fallen into only in the past 10-15 years or so. It's only useful if you then sell it to free up the 'capital' but where do you live then?

Owning a house is just one way to organise your life and income to prepare for retirement living costs. There are many others. To work well for you, it requires a plan. Owning your house is not the plan.

David I concur , see my comments below . We older buggers have a real problem if we are not careful

You are missing MB's point. He/she is saying that a freehold debt free house is the minimum base requirement with which to face retirement ie you don't want to be entering retirement either renting or with debt still to pay on a mortgage. One then layers other investment strategies on top of that. Leastways that is how I interpret his/her point.

What's wrong with entering retirement, renting?
It's an emotional argument used to support the purchasing of property?
There might be any one of many reasons to rent - cash flow ( rent costs less than the alternative application of funds + upkeep); market risk ( the value of ,even cash, may be a better store of a lifetime's worth of effort than having a depreciating asset); flexibility (not stuck in one place of residence for an extended period -forever?); suitability ( the established home isn't suitable for a couple, or singleton, as time goes on) ;future events ( the need to 'rent' in a retirement village or the like rather than own a home) etc etc.
It's a relatively recent phenomenon that 'people must retire into their own home" when in generations previous to ours, people rented to the grave, so to speak.
We may just have been conning ourselves into what will turn out to be the ultimate financial trap!

Entering retirement still renting usually goes along with having no other assets as well. Didn't have to mean that, but that is how it often happens.
There is this thing at retirement many are edging closer to each year. Called the 'income cliff'

Oh, I don't know, but maybe the slight inconvenience of every week trying to find $300+ (rent )out of your pension to maintain a roof over your head might be a small issue?

The proceeds from the sale of the $1m home would easily fund the rent, as well as leaving a few more dollars not otherwise available to enjoy life.

My parents said that about one of their twenty year old friends who was in an accident - he received $30,000 from ACC. That almost enough to buy 100 acres of farm land at the time, enough for 2 houses.

All their friends were in awe. ... $30,000 ? He was set for life.

50 years later it's not even median _annual_ wage nationally, barely median in provinces

The discussion is around retired people (with a shorter investment horizon and, hopefully, with the wisdom to maintain the real value of their capital). How did we jump to 20 year-olds?

depends if they've invested the amount alternatively in a higher paying portfolio, then one just links to the other. Some folks prefer that because houses are very immobile, and if they figure they want to retire somewhere warmer, or near family or near hospital it makes a lot of sense.

Also must remember than part of NZers (and US) love of houses is because we've never had a modern land war on our soil - so houses are moderately secure investment. In somecoutries it's just asking for trouble. And unlike some drier countries, we don't have militant governments who can take your buildng, or give your building to their nephews if the rulers see fit. In such places, highly mobile investments are far more sensible.

Retirement 101: 1. Freehold modest house unencumbered by debt. 2. KiwiSaver partial withdrawal, partial retain in PIE KS. 3. Superannuation Govt. 4. Other investments: TDs, Shares, PIEs, mutual funds, Rental property (all uncertain returns/return at all) 5. Good relationships with extended family friend 6. Do it yourself: garden, repairs/skills, etc.

what investments ? Xero shares? fonterra shares?
get haircut by banks who've been raking profits and have your TD rate snipped at their convenience.

A house is one of the few "somewhat passive" investments with easy leverage and continuous return.

Not many of us have the excess funds to plow into bonds, certainly not at a retail level.

Totally agree. As a dear departed friend of mine who made a lot of money through his successful business, and leasing out industrial property, once said to me that houses are dead money unless you are receiving rents or you sell it.

[ Comment removed. Not relevant to this story. Ed ]

Its true that many of us have this problem .

As this is an anonymous forum , I can share this with you

Personally , my wife and I are mortgage and debt free.

We have investments ( Including in BHP, Rio Tinto and Fonterra which are not doing well) and are net savers .

I don't own residential property as I think its a shocking investment from a returns and hassle point of view

However , we do not have enough income generating assets to maintain our lifestyle if I retired tomorrow .

In my 50-something years , having been hammered by so many recessions, Stock market crashes , Asian Banking crisises , meltdowns , Finance Co messes and so on , I am negative about everything .

I think we are heading headlong into another global recession ( if we even got over the last one which was masked by money printing )

So if the is another recession shares will fall , property and other asset prices decline , inflation adjusted yields on cash will be zero or minus .

What does one do ?

We just need to be prudent , careful with money , stay out of debt , save hard and be prepared for the worst

A fair summation.

“We can see that if people take time to make a plan, they are generally more likely to choose a more diversified range of investments".
Code for: Please invest more in the fully priced stock market and in low paying bonds so that my industry can make more in fees. Pleeease.

The magic answer is the 'Micawber Strategy' Pretty simple. And if you start it at 18 and stick with it there will be a happy retirement for you.

thats only the start.

for comfortable retirement you need to develop passive income with that extra penny.

Because of time-Value-of_money, just mattressing it, or even compounding it won't be enough once you hit retirement, because in retirement you have to draw on it, and the loss of compounding for a Perpetuity is significant.

What's a plan?

For 15 years I consulted to a Financial Planner - Financial Advisor who followed a simple rule of 1/3 property, 1/3 shares, 1/3 bonds. About 2001 the government tightened the rules requiring all operatives in the financial advice industry to prepare a written plan for every client based on their age, their goals and aspirations, coupled with their ability to undertake and accomplish that plan and so on

The Planner had a boilerplate plan that he simply altered the percentages dependent on the clients age and risk profile, similar to Kiwisaver options, ie diversified, growth, agressive, passive, etc

Most of the work was demonstrating the recording and documentation of the initial interviews and documenting the basis for the recommended "plan"

For which he earned an annual fee of 1% of the "funds under management"

Most of his work was in selecting the share portfolios, which frequently went pear-shape. Some of his time was involved in long drawn-out litigation over property investments in apartment blocks or commercial property or mortgages over the same

Most of his clients were middle aged or older who had the capacity to save

He (his clients) used to take some pretty big hits occasionally - Life wasn't easy - for him or his clients

My partner supports both her parents now living solely of super (they are separated), while also paying off her student loan. Lets just say kids are on hold for a wee while. I bet this will be a recurring story in NZ as the Boomers go into retirement.

Have a big organic vege garden. Have a gym membership. If you have any health issues, fix the problem with diet and lifestyle (do not just cover up the symptoms with pharmaceuticals). Learn to ferment foods (kefir, brine fermented pickles, natto, sauerkraut, kambucha). Learn to lucid dream. Learn how to forage for wild food like NZ spinach. Live in the same neighbourhood for 39 years. Learn to dance (ceroc, tango and salsa). Love the outdoors. Avoid retirement homes until you are falling off your perch. These are my best retirement tips. Steven Jobs never made it to retirement age in spite of his billions.

Done the exercise earlier in the year. 41 now, retire in 24 years, earning a little above average wage. With a full and active wind-down (up) to death’s door in the ensuing 20 years, also allowing for a surviving younger wife, inflation, investment returns and no super, we’re going to need an investment base of 1.6 million of 2040’s dollars to bounce the Undertaker’s cheque. Grim picture alright.