Monthly Archives: January 2016

Very sound comment. Worth repeating

In 2103 Martin Hawes, wrote a piece on NZ Superannuation. It was a well balanced article, and a we enter a period of low deposit interest and low inflation, worth reiterating.

Sunday Star Times 19 October 2013

THE GREAT GIFT OF NZ SUPER

OPINION: For the great majority of people, NZ Super is an important part of the financial plan.

Most of us do not want to be completely dependent on it, but NZ Super does, nevertheless, provide an excellent base retirement income.

You can apply for NZ Super at age 65 and it is paid at various rates depending on your tax rate and whether or not you are partnered or living alone. For a married couple both aged 65 and at the “M” tax rate the amount is $29,962 a year.

That would not be a great deal if that was your only income. However, because it is effectively Government guaranteed, inflation-proofed and paid for as long as you live, it does in fact represent quite a lot of money.

It is quite useful to think about the size of the lump sum that you would need to save to give you the same income as NZ Super gives. The numbers show that a married couple would need savings of slightly over $500,000 to achieve the same income as NZ Super: you would have to save about $500,000, invest it well to have the same retirement income.

There are some variables and assumptions that you have to make, but NZ Super payments are about the equivalent of receiving a lump sum of $500,000 which you invest at 3 per cent and run down to nothing over the 20 years of retirement. The amount that you could draw from this lump sum of $500,000 would be $29,000 a year increasing with inflation at 2 per cent a year.

This means that your right to NZ Super on retirement has a value of $500,000: for a couple, NZ Super is like a 65th birthday present of $500,000.

The annual payment of $29,900 may seem small for a couple to live on, but when you bring it back to a present value of $500,000 it is quite a tidy sum and would take a lot of saving for most people.

So, given the size and importance of NZ Super for most Kiwis, is it reasonable for you to rely on NZ Super – will it continue to be paid?

Many people think not and this uncertainty reflects the fact that for decades NZ Super has been a political football kicked all around the paddock.

I certainly expect that NZ Super will continue to be paid although the age of entitlement will probably be shifted at some point: in its simplicity and low cost, NZ Super is too good a scheme for the country to abandon.

It should be protected and treasured.

Whatever extension of the age of entitlement for NZ Super, it is likely to be very gradual and forecast well in advance. I think you can reasonably plan to have NZ Super in retirement.

Of course, most people reading this will not want to live solely on NZ Super – it may give enough income for subsistence in retirement but most couples will want more income than $29,600 a year.

You ought to be able to draw 3 – 7 per cent for income from the savings that you have accumulated – that is, for each $100,000 that you saved, you should have income of between $3000 and $7000 a year after tax. The actual amount will depend on investment fees, the investment risk that you take, future investment returns, your longevity and the size of the inheritance that you want to leave the kids.

Whether it is $3000 or $7000 a year for each $100,000 that you have saved, it will make an enormous difference to your lifestyle. Let’s say you have savings of $250,000 and you can draw 5 per cent a year: with NZ Super of $29,600 a year you will have total income of $42,100 after tax.

The difference between a $29,600 lifestyle and a $42,100 lifestyle is huge: some nights out, some travel and hobbies.

There are two important things to think about and plan for: first, every bit of savings will make a difference to your retirement lifestyle. NZ Super is your income base and will cover the basics, but additional amounts from savings are very important.

Second, effectively every New Zealander on retirement is given the present value equivalent of $500,000 regardless of what they have done through their working years. While not enough for a lavish lifestyle that will be the financial bedrock of most retirements.

NZ Super is a system so simple and cheap that we need to give people certainty and stop playing football with it.

Martin Hawes is an authorised financial adviser. A disclosure statement is available on request and free of charge, or can be found at www.martinhawes.com. This article is of a general nature and is not personalised financial advice

Posted by Alec Waugh- figures shown are approximate , a guide only.

Variable annuity launch. Post retirement income stream!

Interesting concept developed carefully  over a lengthy time period. Will its complexity hinder retiree interest?

Its very important any scheme can be simply explained , if you cannot do that in a few words, people freeze or fear.

Pleasing to see financial advisor link and it would be of benefit if banks/workplace schemes can develop a relationship with the Retirement Income group.

See Rob Stocks article

http://www.stuff.co.nz/business/money/75404904/new-zealand-gets-its-first-variable-annuity-from-the-retirement-income-group

 

Posted by Alec Waugh

Winning Entry-Top 10 things to do pre retirement

Winning entry for the Financial Capability Commission competition, as submitted by Rosemarie Hawkins

Cardinal rule. Don’t spend more than you earn

Credit card. Pay off the total sum owed each month

Get rid of that house mortgage as soon as possible. If children have left home consider downsizing. Look at retirement villages with three levels of care. Find out all about how they managed and staffed. Tell the family your thoughts and discuss the what “if’s”.

Reverse mortgages. Sounds good but there are costs involved so get good advice.

Kiwi Saver.If you are about 50 join as soon as possible and go into the high risk fund (which offer better returns in the long term). If you are over 60, go into a conservative fund.

Have a couple of term deposits at the bank that mature at different times. have at least one on either 30 or 90 days notice in case of emergencies.

Get regular blood pressure and cholesterol checks, a colonoscopy every five years, an eye test every two years and book in for a melanoma check.

Holidays. How much of the this beautiful country have you seen. If holidaying overseas, plan well in advance and take out good travel insurance.

Health insurance if you can afford it. Loss of income if under 65 and self employed. House (replacement value) and contents, both are worth reviewing regularly. Car insurance can be cheaper if it is used around town only.

Will,:  Make sure that you have one and that is renewed every two years. Enduring Power of attorney for peace of mind.

Financial adviser. It is wise to go through the professional body to find one

Website. Look at http://www.sorted.org. nz

The transition. Think about interests and hobbies before you retire. Will you be able to continue with them and will you be physically able?

 

Posted by Alec Waugh