19 April 2017
The Retirement Panel
Bernard Hickey, Liz Koh, and Ralph Stewart answer your questions.
Bernard has been an economist and financial journalist for 25 years. He has worked for Reuters, the Financial Times, and Fairfax Media.
Liz is an economist, financial adviser, and author who specialises in common sense financial advice. She is the author of popular financial advice book, 'Your Money Personality'.
Ralph was previously CEO of AXA Insurance and the ACC. At AXA, Ralph set up one of the first KiwiSaver schemes in New Zealand and has since established Lifetime Retirement Income to help New Zealanders transition from saving to spending in retirement.
I am interested in how older generations are contributing to the supply of new goods and services for the retired community. We always hear about innovation and entrepreneurship as being a young person’s endeavour, what about innovation by the retired community for the retired community?
You are so correct. Retiring Baby Boomers are using their savings to challenge the status quo, shape industries and reshape society. Everything from sex to cemeteries is being challenged by ‘old money’ that is demanding improved services, innovative products, and more experiences. Let me give you an example of an Australian bicycle manufacturer recently noted in the Australian Financial Review.
David Metzke, a retired General Motors executive, has launched a company called Dyson Bikes, which makes custom-built bikes for older riders. Discreet engines can be installed to aid tiring muscles and crossbars can be lowered to ease access.
About 70 per cent of Dyson Bikes customers are aged 55 to 90.
"A lot of clients are formerly successful business people who have sold up and are looking for a way to keep fit and have fun. Our bicycles allow for different levels of fitness," says Metzke.
You can learn more about Dyson Bikes here.
I am a really conservative investor. I rely totally on bank deposits and I just accept whatever the interest rate is, even though it’s low at the moment. Should I be thinking about this differently?
Conservative investments generally provide their return by way of income, rather than by capital gain.
Your income is taxed but capital gains are often not. By the time the effects of inflation and tax are taken into account, the return you get from conservative investments can be lower than it originally appears.
Getting a good return from conservative investments can often come with a loss of liquidity. That means you are unable to access the amount you have invested for a specified period of time. Sometimes you can access your capital but you may lose money in the process. With term deposits, that might mean a loss of interest as a penalty for breaking the deposit early, or with bonds, it may mean selling the bonds at a discount and for a fee.
Locking money in for a long period at a fixed rate of interest can also result in a loss if interest rates rise.
Keeping conservative investments means you may miss out on higher returns available from alternative investments but cashing them up results in interest penalties or discounts on sale.
It’s important to think about the cost (forgone returns) of conservative assets as well as the value of their ‘safety’. Sometimes just a small increase in risk can yield much better returns and help you get more out of your savings.
If you’re interested in reading more about this, I wrote an article for the Dominion Post recently about the costs of conservative investments. Read more here.
Liz Koh is an Authorised Financial Adviser. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free of charge by calling 0800 273 847.
At the Christchurch seminar you talked about changing the income rates to suit an individual’s actual age. Can you explain further please?
We are currently amending our Trust Deed and Product Disclosure Statement to allow us to apply a guaranteed rate of annual income based on an individual’s exact age when they invest. We currently offer guaranteed minimum rates for life in five year bands, for example investors aged between 65 and 69 receive 5.00% (after fees and taxes) and investors 70 to 74 receive 5.50%. These rates increase by 0.5% every 5 years.
In future (but effective immediately) from age 65 the rate will increase by .10% every year. For example, an investor aged 66 will receive a minimum income of 5.10% p.a. (after fees and taxes) for life, an investor aged 67 will get 5.20% p.a., and an investor aged 68 will get 5.30% p.a. etc.
This change allows our investors to receive the guaranteed rate that best reflects their age on commencement. We hope to have these new rates incorporated into our Lifetime Income Calculator shortly.
Also, as a result of strong feedback from the seminars, we have lowered our initial investment size from $100,000 to $25,000. We initially set the investment size at $100,000 as this equated to around $100 per week for life for someone aged 65. We thought that this was a material amount. Feedback from the seminars has taught us that a ‘material amount’ is different for different people. As a result, we have set the initial investment amount lower to allow people decide for themselves.
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