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22 April 2013

Have Your Say on Retirement Income Policy

Filed under: Retirement - Tags: - @ 3:21 am

LoudSpeakerHave Your Say on Retirement Income Policy

Baby boomers should by now be well aware that as they move towards and through retirement, they will place huge pressure on NZ Superannuation. Every three years, the Commission for Financial Literacy is charged with reviewing retirement income policies. Now is your chance to have a say on how things might be for your future.

When pensions were introduced in 1898 they were set at one third the average wage, payable at age 65. At that time only 2.1% of the population was aged over 65. For the first forty years pensions were income tested and asset tested and a good character test applied. The universal pension was introduced in 1938. Now around 14% of people are over 65 and by 2050, this figure will be 25%. Some of the key questions to be answered are:

  • Should retirement savings be compulsory? If not, how can we encourage people to save more?
  • Should NZ Superannuation be asset or income tested or should it be universal?
  • Should the level of payment be benchmarked to the average wage?

People are not only living longer but they are spending more. Pensions were originally introduced to alleviate poverty for a few years between retirement and death, but these days, retirees have an expectation of leading a full and active life for around thirty years after they retire. To what extent should the pension cover these costs? How will the shrinking number of taxpayers be able to cover the increased costs?

Possible solutions could include:

  • Increasing the age of retirement as life expectancy increases
  • Introducing schemes to allow retirees to draw on the equity in their house
  • Allowing people to choose their retirement age and adjusting the level of payment accordingly.

These are all important issues. Have your say by clicking here.

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1 April 2013

Retiring Early

Filed under: Retirement - Tags: - @ 10:39 am

Retiring Early

It wasn’t so long ago that most people had an expectation of retiring completely from the work force the day they became eligible for NZ Superannuation. These days, more people are choosing to reduce their hours rather than stop working altogether, sometimes starting this process well before official retirement age. While many dream of retiring completely at an early age, only a few are able to make this a reality.

Retiring early requires a considerable sum of money for several reasons:

  • Your desired level of retirement income will have to be produced entirely from your own financial resources until you are eligible for NZ Superannuation.
  • The time you will spend in retirement will be longer than for those who don’t retire early, thus exposing you even more to the ravages of inflation and taxation once you have stopped earning
  • A longer retirement may increase the frequency of having to spend money on replacing your car, maintaining your house and dealing with health issues while you are not earning.
  • The time you spend in the active stage of retirement will be much longer, and you may need more money to pay for the things you enjoy such as travel, sports and entertainment

Not only will you need more money for your early retirement, but you will have fewer years to accumulate it. This implies the need to take on greater financial risk in order to get a higher return. Of those who succeed in retiring early, many have invested in businesses, shares or property to accumulate the wealth they need. Early retirement is possible; it just requires advance planning of the lump sums and regular income you will need during retirement, calculation of how much wealth you will need at retirement, and a strategy for accumulating it.

 

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19 November 2012

Checklist for Retirement

Filed under: Retirement, Uncategorized - Tags: - @ 12:46 am

Checklist for Retirement

One of the strange things about life is that the older you get, the faster the years seem to go by. It pays to get your affairs in order at retirement so the rest of your life will be free of problems, especially if the effects of ageing come faster than you expect. Here is a checklist of some of the things you should attend to at retirement:

  • Is your Will up to date?  This is especially important if you have had a chance in circumstances such as a new relationship or death of a partner or child.
  • Have you granted Enduring Powers of Attorney to a family member or close friend? These will enable your chosen Attorney to make decisions and sign legal documents on your behalf in the event that you become mentally incapacitated.
  • Is your money invested appropriately? Your needs may have changed from investing for growth to investing for security and income. Tidy up your portfolio by selling off any small holdings, especially small overseas investments that could be time consuming to sell for the executor of your estate.
  • Have you reviewed your life insurance? Your life insurance needs in retirement should be minimal. Old whole of life policies can be earmarked for funeral expenses or possibly converted to endowment policies so you can enjoy the proceeds while you are still alive.
  • Have you reviewed your estate planning? Alternative options for the ownership of your house and investments should be considered, such as joint ownership, tenants in common, or a family trust.
  • Are your important documents filed away in an orderly fashion where they can be easily found by family members if anything happens to you?

Attending to these matters will give you peace of mind in later years.

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5 November 2012

Dealing with Life’s Changes

Filed under: Retirement - Tags: - @ 1:11 am

Dealing with Life’s Changes

Every so often, we may experience a sudden change in our life, either planned or unplanned. Eva Bennett has just published a handy guide, written very clearly and succinctly, to help you deal with the three biggest changes: relationships, redundancy and retirement (As Time Goes By; Dealing with Life’s Changes, available from her website (click here). We only have one life, and to make the most of it means having the resilience to withstand change so potentially negative events can be turned into positive ones. Sometimes that can mean stepping outside your comfort zone. Here are Eva’s tips for dealing with life’s changes:

  • Set a clear, positive vision of how you want your life to be. Change your thoughts to change your life.
  • Reinvent yourself. Make a list of all the things you are good at and think about how you could apply those skills.
  • Don’t let fear hold you back from making changes. Ask yourself “What is the worst thing that could happen? What are the benefits if I take the plunge?”
  • Give service to others as a way of maintaining social contact and helping you feel good about yourself
  • Aim for a balanced life in the six key areas of work, relationships, health, leisure, finances and goals
  • Practice good communication skills so you stay connected with your family and friends
  • Use your money wisely
  • Lighten your load by getting rid of things or relationships that drain your energy and thinking about what makes you feel more energised
  • Think young and do what you love! Use diet and exercise to slow down the aging process and maintain your health.

Eva’s book gives lots more information and case studies on how to make these changes. Life is to be enjoyed now, not later. As Eva says; ‘Do it while you can because we don’t know what the future holds’.

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15 October 2012

Plan for a Healthy Retirement

Filed under: Retirement - Tags: , - @ 11:33 pm

Plan for a Healthy Retirement

One of the consequences of an aging population is that there will be increased pressure on an already overloaded public health system. Advances in technology will add to the pressure as new but often more costly procedures become available. Health care costs are 10 times higher in old age than in mid-life. By 2050, 1 in 4 people will be aged over 65, compared to 1 in 8 now. Not only will the total spend on health increase dramatically but there will be fewer taxpayers to fund it!

Possible outcomes over the next twenty years could include:

  • Longer hospital waiting lists
  • Reduced Government spending on other important areas such as education and social welfare to help fund health care
  • Access to medical treatment based on ability to pay
  • Increased reliance on private health care
  • Unaffordable health insurance premiums

Research shows that good health is one of the main determinants of happiness. Planning for a happy retirement means planning for a healthy retirement. Strategies you can use to plan for good health include:

  • Maintaining healthy practices throughout your life with regard to fitness, diet and health checks
  • Staying active and working beyond the age of 65 (good for your finances as well as your health!)
  • Setting aside a separate fund of money to be used either to cover the costs of private health care or to pay the premiums for health insurance
  • Reducing the cost of health insurance by increasing your excess and setting aside funds to cover the excess.

There is no question that paying for health care is a major retirement issue now and it will become critical. As medical technology advances, you will want nothing but the best available treatment. Make sure you can afford it by planning ahead.

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3 September 2012

How to Avoid Poverty in Retirement

Filed under: Retirement - Tags: - @ 12:52 am

Avoid Poverty in Retirement

One of the most difficult aspects of planning for retirement is estimating just how much it will cost to live when the kids and the mortgage are gone and you are no longer working. People find themselves in different situations at retirement. Costs of living can vary depending on geographic location and how many people are living in the household. Ideally, everybody planning for retirement needs to set out a retirement budget based on their own circumstances, but this is not easy to do when you are still working or still have children at home.

A recent study by Dr Claire Matthews, of Massey University, gives clear guidelines on how much it actually costs to live in retirement based on data from Statistics New Zealand’s Household Economic Survey and an online survey (see the full report here). There are spending guidelines for eight groups of retirees, with groupings based on location (Metro and Provincial), household size (One or Two) and budget type (‘No Frills’ or ‘Choices’). The guidelines exclude the cost of housing, which can vary considerably depending on location and whether you are renting or live in your own home.

The messages from the data are clear. At a “No Frills’ level of spending, NZ Superannuation is more than sufficient to cover non-housing expenses, however any surplus is likely to be absorbed by housing costs. At a ‘Choices’ level of spending, NZ Superannuation is almost enough to cover non-housing expenses for one person, but for a two-person household there is a substantial shortfall. The ‘No Frills’ budget allows for no spending on clothing and footwear, and very limited spending on food, power, health, recreation, takeaways and restaurants. To avoid poverty and have a comfortable retirement, retirees need income to supplement NZ Superannuation, either from part time employment or investments.

 

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29 July 2012

Asset Rich, Cash Poor in Retirement

Filed under: Retirement - Tags: , - @ 9:27 pm

Asset Rich, Cash Poor

There is nothing more terrifying than the prospect of running out of money late in life. Many elderly go without in order to avoid this situation and make their savings last as long as possible. Retirees living in their own homes are often asset rich yet cash poor. When the cash runs out, there are a number of options available to avoid living in poverty:

Sell the house and buy a cheaper one to free up cash. Often this is not possible as the house is already at the low end of the market and by the time selling and moving expenses are taken into account, there may be insufficient cash freed up. Elderly people are often very reluctant to give up a comfortable home.

Sell the house and rent. While this can result in a big amount of cash becoming available in the short term, rent is a huge expense which increases over time and quickly consumes the cash. The loss of certainty of occupancy can be a problem.

Borrow money from children. This can be fraught with difficulty if children are not able to contribute equally or if the loan is not properly documented.

Borrow from a bank. Banks will sometimes lend on an ‘interest only’ basis, however, that means having to meet the extra cost of interest payments each month.

Take out a home equity loan. This is usually a last resort option due to the cost of compound interest, but it can be a very effective solution for certain borrowers, especially those who are not concerned about leaving money for children.

While none of these options are ideal, they may be better than the alternative of living a miserable life. It is a matter of considering the positive and negative aspects and selecting the most beneficial option.

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23 July 2012

Are You on Track?

Filed under: Retirement - Tags: - @ 6:00 am

Are You on Track?

One of questions most frequently asked of financial advisers by clients who are mid-way through life, is “Am I on track?” While it is not exactly a mid-life crisis kind of question, it seems to arise at about the time people realise they are past the half way point to retirement. Your financial journey through life is a bit like running a marathon. When you are young and carefree the retirement finishing line is somewhere in the hazy distance and it seems you have all the time in the world to get there. About half way through, you look around to see how you are doing in comparison with your peers running the same race and notice that some of them have streaked ahead. As the final straight looms, you realise that, despite a final burst of energy, your place in the race has been all but determined by how you fared in the earlier stages.  However, when it comes to your financial journey it is much harder to judge where you rank against your peers.

Here are some simple checkpoints for the end of each decade of your life:

  • Twenties: You’ve got through without incurring short term, high interest debt and you now have a sizeable sum in your KiwiSaver account
  • Thirties: You’ve saved a deposit for a house and set money aside for emergencies
  • Forties: You’ve paid off most, or all, of your mortgage
  • Fifties: You’ve built up a diversified investment portfolio in addition to KiwiSaver
  • At retirement: You and your partner have an investment portfolio of around $150,000 – $200,000 which will add around another $10,000 to your combined annual income after tax of around $28,000 from NZ Superannuation.

Achieving these targets will make you a front runner at the finish line.

 

 

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25 June 2012

Retiring on KiwiSaver

Filed under: Retirement - Tags: , - @ 2:53 am

Retiring on KiwiSaver

A KiwiSaver milestone will be reached in July this year, five years after KiwiSaver was first introduced. When a KiwiSaver member reaches the official age of retirement (currently 65) and has been in the fund for a minimum of five years they can choose to withdraw their funds or leave them invested in KiwiSaver.  

When you have access to your KiwiSaver funds, your provider or adviser should let you know what your options are. These should include:

  • Leaving your funds invested until you need them
  • Continuing to make contributions to your fund
  • Making a full withdrawal
  • Setting up a regular withdrawal from your fund
  • Making lump sum withdrawals from time to time as your need funds

If funds are left in KiwiSaver, you will no longer receive a Government tax credit and your employer will not be obliged to make a contribution. KiwiSaver providers offer a range of different funds, including conservative, balanced and aggressive funds. Conservative funds are more heavily invested in fixed interest and aggressive funds are more heavily invested in shares while balanced funds are somewhere in between. Your investment can be switched at no cost from one type of fund to another.  You should ensure that your chosen fund is appropriate for your financial situation.

Your decision about what to do with your funds will depend on a number of different factors, including:

  • Whether you need income from your investments
  • The amount and nature of other investments you have.
  • Your attitude towards risk and return
  • Your time frame for investing

It will be interesting indeed to see how eligible members respond in July to suddenly having access to their funds, which in some cases could be substantial. The more sensible will obtain professional advice before making decisions.

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11 June 2012

How to Avoid the Six Common Pitfalls of Retirement

Filed under: Retirement - Tags: , - @ 12:05 am

Avoid Retirement Pitfalls

Retirement is something that most people look forward to but it is a major life change that needs to be planned if you want to get the most out of it. Stepping into retirement without having thought ahead means you run the risk of your retirement expectations not being met. The key to enjoying life at any stage is to have balance between all the things that are important to you. Eva Bennett, an Australian retirement consultant, has identified six key areas that work together to create a balanced lifestyle; finance, home, leisure, health, relationships and purpose.  Here are the questions you need to be asking in each area:

  • What strategies are you putting in place now, to make sure you have enough money to last the distance when you retire?
  • Do you plan to stay in your present home, down-size, move to a retirement village, or sell your home and buy a caravan?
  • Do you already have interests that you look forward to spending more time on in retirement? What are some of the things you would like to do when you retire? Do your travel plans match your budget?
  • Do you have a fitness routine? How do you rate your level of health at the moment? What would you like to do when you have more time, to keep healthy?
  • Do you communicate your needs easily with others? How important do you think it is to start talking now about your retirement plans with your partner? How important is daily social interaction to you?
  • What is a dream you have held off doing? How can you use the skills you have developed in your life after work? Would you like to continue working part-time or start a new venture?

For more information about planning your retirement, click here.

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