Retirement Saving
Leaving your retirement saving until the last five or ten years of your working life can be a dangerous strategy. The same can be said for planning to save for retirement by working past the age of 65. It is all very well and good to kick your heels up and enjoy life while you are young, fit and able to travel, but disaster can easily strike as retirement approaches. Statistics show that earnings reach their peak around the age of 45-50 for the average person. As you get older, the risk of redundancy and ill health increase, and a break in your career for either of these reasons means you may then be forced to line up for a job along with much younger and fitter competitors. There is a chance for some people that they will not be able to work full time in their chosen occupation again after a career break late in life.
With life expectancies now in the mid-eighties and rising, the average person can expect to live at least twenty years in retirement, and around half of people will live for longer than that. Twenty or thirty years is a very long time to live on the breadline. You can choose to spend forty or fifty years working and having a ball followed by twenty or thirty years of misery, or you can choose a more sedate but still enjoyable working life followed by a long and comfortable retirement. It’s all about balance. Use a retirement calculator (see here) to work out how much you need to set aside each year to achieve your retirement goals, and whatever you earn over and above that can be spent on whatever you like, safe in the knowledge that your long term future is taken care of.
Investment Portfolio Design
The last ten years in investment markets has been a rough ride what with the dot com bubble, the Twin Towers disaster and the Global Financial Crisis amongst other things. The investment recommendations of financial advisers have been under close scrutiny and some have found themselves in court. Good advisers use a thorough process for making investment recommendations, starting with a comprehensive interview with prospective investors, leading to analysis and research, portfolio design and finally product recommendations. Failure to understand an investor’s attitudes towards risk and return and failure to understand product risk have been the two primary causes of complaint against advisers. Recommending products from the thousands available in the market requires extensive research. For small advising firms this is simply not cost-effective and many purchase research from specialist research companies. Increasingly, advisers are using what are called ‘model portfolios’. These are portfolios researched and designed by experts to fit a range of investment profiles from conservative through to aggressive. With any investment portfolio, the key decision to be made is how the portfolio is split between the four asset classes of cash, fixed interest, property and shares. The adviser’s principal responsibility is to recommend the most appropriate split based on their understanding of the investor and to then select a fully researched portfolio of investment products based on that split. There are several advantages of using model portfolios for both investors and advisers. For investors, there is the confidence of knowing that the portfolio has been extensively researched and is constantly monitored for performance. Adviser time is spent with investors, understanding their needs, keeping them up to date with market information and answering their questions. For advisers, the risk of recommending inappropriate products is considerably reduced. Model portfolios make good sense and their use is bound to increase.
The End of a Relationship
It has been said that if breakups never existed the music industry would go bankrupt! Unfortunately, they are a fact of life. Most people endure at least one in their lifetime; some lurch from one to the next, but no matter how often you experience a breakup it is still a very painful experience. Dealing with financial matters at such an emotional time can be very stressful, and it is better to reach an agreement with your partner while you are still a happy couple on how your property will be divided in the event you part. This should be done with the assistance of your solicitor. The key matters to consider are
- What property has each partner brought into the relationship?
- What is separate property that is to be preserved for each partner?
- What is relationship property that is to be divided?
- How is the relationship property to be divided?
In the absence of a property agreement, the Property (Relationships) Act sets out a default formula for how property is divided when a couple separates or one dies. In general, for couples who have been in a relationship for three years or more, the couple’s property will be divided equally.
It is important that you get legal advice before reaching any agreement with your partner so you know what your rights are. However, going into battle for every last cent of your entitlement may leave you worse off after paying your legal bills, so be flexible.
Debts need to be shared as well as assets and this can include credit cards and hire purchase. As soon as your relationship has ended, make sure you protect yourself by freezing or closing every joint account, credit or store card or other debt arrangement. Be safe, not sorry!
Financial Literacy
International experts on financial literacy were beamed in from across the globe for the Retirement Commission’s recent summit on Financial Literacy. We know that financial illiteracy is a big problem in New Zealand, but we are by no means the only country in the world struggling to educate people on how to use their money more effectively. The major difference, however, between New Zealand and the rest of the world is that we lack the commitment and resources from our Government to tackle this problem in a way that will really make a difference. The Retirement Commission is internationally recognized for its efforts in financial literacy despite a limited budget. Diana Crossan, Retirement Commissioner, in her opening address reminded the Government that more money is required to support financial literacy in schools if we really want to see an improvement in the personal financial well-being of Kiwis. While financial education is now part of the school curriculum, budget cuts in the education sector have meant a drastic reduction in the funding available to support it. Money habits are formed early in life and changing the attitudes and behaviours of young people is an effective way to change the financial literacy of the population over time.
In the UK, a recent initiative is the Money Advice Service, which brings free, unbiased financial advice to people online, over the phone and face to face across the country. Our Retirement Commission is able to provide people with information and resources, but is not able to give advice. Free advice is available from the Federation of Family Budgeting Services, however the public perception of this service is that it is somewhere you go when you are on the verge of financial ruin. What New Zealand needs is low cost, highly accessible advice for all.
