Retirement poverty - that's a thing and it's discouraging to hear it's a growing problem in NZ. What are the current solutions?
Retirement poverty - that's a thing and it's discouraging to hear it's a growing problem in NZ.
According to an OECD report from April 2018, just 10.6 per cent of over 65s in New Zealand were considered to be living in poverty compared to the OECD average of 12.5 per cent (good news, but wait for it...). But of those 76 and over, 15 per cent were in poverty compared to 13.9 per cent across the OECD.
Living off super, without any extra capital to draw down on in your later years (when health may start to fail,), is not at all ideal.
What are the current solutions to live an enabled retirement in NZ?
- Live off the interest from savings? With record low interest rates and no sign of this changing any time soon, the strategy still relied on by many, is quickly failing. Depletion of capital will still have to occur, putting further downward pressure on very modest interest income already.
- Invest in riskier asset classes? Great idea in general but in your golden years with a shorter investment horizon, would it really be wise to risk losing some of your capital due to market cycles? Even if the best advice in this space is delivered to this community, I wonder if for the majority of retirees (who have lived through the stock market crash of '87) this is a step too far?
- Sell the family home and downgrade in value? Often the locations retirees move to is further away from family and medical care - again, not ideal. Sell and rent, sell and move into a retirement community etc - all great ideas and in practice, when one is fortunate enough to have a home at retirement, this works great. It does, however, incur fees, and take equity away from the individuals who really need to be enjoying themselves.
- Get a reverse mortgage? Touted by some as a great solution for many, in a lot of cases this forces retirees to make a deal with the devil they just vanquished from their finances. Often there is no other option and should be considered, but it's by no means a solution that all should adopt.
Assisting retirees who are equity rich but cash poor and the next generation who are cash rich but equity poor, is a problem begging for a solution. I have every faith that something will happen in this space at some stage - but what about any other current options?
A variable rate annuity. This is the solution that Lifetime Retirement Income provides. You put money in, and you get a fixed income for life - simple. It's not something that I'd consider an investment, but it is something that effectively solves a problem - providing fixed income, to supplement super which is guaranteed, and invested in a way to provide returns greater than the rate of inflation.
After working with AXA on a similar product that never saw the light of day (due to its sale), Ralph Stewart had the inside knowledge, the expertise, and the foresight to bring this product into existence in NZ and in 2013 he started Lifetime Retirement Income.
One of the key points that became clear in this conversation, is that innovation is welcomed by the FMA (financial markets authority).
Innovation should not only focus on user experience, but it should also focus on product design. New Zealand is very much lacking retirement annuity products that can be used to supplement income on top of super.
This product is not the only tool that could be implemented, but with advice, it may be appropriate for some individuals. As always, I'd highly recommend independent advice from an authorised financial adviser before embarking down this path.
Where to find Ralph Stewart - check out www.lifetimeincome.co.nz
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Ungaro &Co (registered) financial advisers https://www.ungaro.co.nz
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