2 May 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.
My husband and I feel very fortunate to have the security of NZ Superannuation but I worry about my children. Do you think the young people of today will still receive NZ Superannuation in 30 years’ time?
Unfortunately, the Government has decided to progressively reduce the incentives for KiwiSaver over the past 7 years and stop making contributions to the NZ Super Fund (also known as the Cullen Fund).
The NZ Super Fund quietly reported late last year that if the Government had not stopped making contributions in 2009, the fund would now be worth $50.6b, which is $20.5b larger than it is today. The Government instead chose not to borrow $14.7b over those 7 years and hand it on to the fund to invest.
This means today's under 35s are missing out on at least $5b that would have been earned over and above the debt incurred if the Government had continued borrowing to invest. These forgone returns will compound in the years to come, further increasing the burden of New Zealand Superannuation.
The Government has also chosen not to tax the billions of dollars of housing wealth that has accumulated to those aged over 35, something which is helping to fuel a widening gap between generations.
Those under 35 face a future of very expensive housing (most likely as renters) and much lower net wealth as they approach retirement. They may also have to pay higher taxes to keep paying the pensions of retirees who have well over $1 trillion in assets (the majority of which is made up of housing wealth).
It's not fair and no one is doing anything much about it.
Liz, I am bemused by the age of retirement, it feels like it is a magical point in time when the world suddenly changes. I appreciate that leaving a career and living differently are significant life events but so was having our first child, and the world did not change the day after Sophie was born. Do you have any thoughts on transitioning to a different life in retirement?
Traditionally in days gone past, retirement occurred on a known date and the strategy was to squirrel away money as quickly as possible so that on the determined day, after which the opportunities for other work were virtually none, a comfortable life could be enjoyed for the remaining years of life. For those unable to save much, there was always the government pension, which provided an adequate standard of living.
Of course, life expectancy was much different then, and the life of leisure, which I am sure for some was a life of boredom, didn't last as long as it does now. Increased longevity, and better, more interesting options for older workers mean that the nature of retirement is changing.
Retirement today is less about not working at all and more about choosing a different way to work, whether that be working less, setting up a business or changing career to something less demanding or more rewarding.
In fact, it is possible to move in and out of retirement, by taking breaks in between jobs. In these scenarios, less focus is needed on acquiring a large sum of money for retirement. The income required to top up a meagre government pension comes not from investments but can come from paid work.
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.
My term deposits are difficult and expensive to break. If I make a series of investments as various deposits mature will my guaranteed income rate change?
Yes, your guaranteed after tax income increases by 0.10% each year on the anniversary of your birthday. For example, if you were 65 when you made your initial investment, your annual income rate would 5.00% (after fees and taxes). If you made a subsequent investment one year later, you would be one year older (66) and your rate would be 5.10%. These updated rates are available now but will not be advertised directly on our website or calculator until our new Product Disclosure Statement is released in the coming weeks.
It is very important to understand the terms and conditions of term deposits. They can differ from bank to bank and the withdrawal provisions can be different. The banking ombudsman publishes complaints they are asked to investigate with regard to term deposits. There are some good examples which you can view here.
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