So how is everyone saving money for old age?

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Forums › Finance and wealth management › So how is everyone saving money for old age?

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#2008569 6-May-2018 00:56

Item:

floydbloke:

Trees, I own a few hundred (might even be a few thousand) through a forestry management company. This makes me feel quite good as it's a 'green' investment, and at the moment it looks set to return about 9% p/a net (compounded). Although it is a commodity and will depend on the log prices at harvest time about 7 years from now. The most frustrating thing about this is, despite owning lots of pine, I still need to part with $20 or so when I go to Mitre 10 for a 2 metre length of 4x4.

Any advice on this? I have been thinking about a forestry investment - either shares or a whole small plot.

I reckon the best time to invest in trees is now or the last 5-10 years.

There was a boatload of trees planted in the 90's which are coming up for harvest (kiwirail are even opening closed rail lines to help with transporting to port) and so I think prices will stay steady or drop with the amount of trees coming to market.

But that may not be the case once the 90's planting frenzy has been harvested over the next 10 years.

Ray Taylor

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ermat

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#2008592 6-May-2018 09:02

mdav056:
Before I retired, I saved very hard, and was able to get into KiwiSaver for a few years. Now, what I saved is in the bank arranged as ladder deposits which come due every 5 years; I take out what I need for the next year, and reinvest the remainder for 5 years.

But here's something about which we have been thinking: Selling up our house in East Auckland, and moving away to someplace cheaper (which would give us a decent amount of capital) BUT this would mean moving into another hospital area, away from Auckland hospital. The data we have collected from family members who get sick is that this would be a really bad thing to do--expertise in the smaller hospitals seems sadly lacking, and if you are lucky you'll get sent back to Auckland to get the fix.

So maybe saving by buying a house in Auckland is not the best thing to do. You may need more than that.

Another thing to consider is that if you have private health insurance, the premiums increase at MUCH more than the rate of inflation when you're over 65. I'm currently paying about .25 of my government super on a slimmed-down version of my previous reasonably good, but by no means top notch, policy. Not sure how long I'll be able to go on doing that, so that's another reason for staying in a good hospital area.

I have also thought through this option. I will definitely sell up at retirement (currently in Tauranga) and move somewhere cheaper. So much better value elsewhere.

With regard to having access to hospitals etc, my view on this is firm. I will throw the dice and take my chances, in my view life is too short to worry about stuff that may not even happen. None of us are going to live forever anyway. Same theory with my health insurance. Once it got too expensive a few years back i canned it.

mattwnz

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#2008708 6-May-2018 13:16

ermat:
I have also thought through this option. I will definitely sell up at retirement (currently in Tauranga) and move somewhere cheaper. So much better value elsewhere.

With regard to having access to hospitals etc, my view on this is firm. I will throw the dice and take my chances, in my view life is too short to worry about stuff that may not even happen. None of us are going to live forever anyway. Same theory with my health insurance. Once it got too expensive a few years back i canned it.

You may find that you won't free up much capital selling and moving elsewhere, after taking into consideration agents fees, moving costs etc. Also much of the rest of the country has also had larger price rises over the last few years. So it largely depends on where you want to move to. But the main centres exc Auckland are probably around the same sort of price as Tauranga these days, unless you go south south.

With health, we have a pretty good public health system for life threatening stuff, and we now have Labour in Government, which is supposedly pumping a lot of money into it. I am all for a better public health system, to eliminate the need for insurance, and it relies on everyone paying their fair share of taxes. Some rich people though will always have insurance so they can get priority.

ermat

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#2008714 6-May-2018 13:32

mattwnz:
ermat:
I have also thought through this option. I will definitely sell up at retirement (currently in Tauranga) and move somewhere cheaper. So much better value elsewhere.

With regard to having access to hospitals etc, my view on this is firm. I will throw the dice and take my chances, in my view life is too short to worry about stuff that may not even happen. None of us are going to live forever anyway. Same theory with my health insurance. Once it got too expensive a few years back i canned it.

You may find that you won't free up much capital selling and moving elsewhere, after taking into consideration agents fees, moving costs etc. Also much of the rest of the country has also had larger price rises over the last few years. So it largely depends on where you want to move to. But the main centres exc Auckland are probably around the same sort of price as Tauranga these days, unless you go south south.

With health, we have a pretty good public health system for life threatening stuff, and we now have Labour in Government, which is supposedly pumping a lot of money into it. I am all for a better public health system, to eliminate the need for insurance, and it relies on everyone paying their fair share of taxes. Some rich people though will always have insurance so they can get priority.

Yes, South is where I'm looking.

xlinknz

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#2010322 8-May-2018 20:54

Freehold home
3%+3 employer contribution in a government super scheme
3% additionally in Kiwisaver (no employer contribution so 6+3 in Super/kiwisaver)
Large deposits in Kiwisaver style managed funds but accessible before retirement if needed
Be astute with money knowing how much you need at retirement

Do the math on the sorted.org.nz retirement calculators and go from there

sonyxperiageek

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#2010347 8-May-2018 21:39

How much do you reckon you will need by the time you're 65? I know it will different per person, but keen to hear others' values.

Sony

mdav056

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#2010352 8-May-2018 21:50

$1*10^6, and a partner who has a few years of working remaining!

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Lastman

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#2010360 8-May-2018 22:12

mdav056:
BUT this would mean moving into another hospital area, away from Auckland hospital. The data we have collected from family members who get sick is that this would be a really bad thing to do--expertise in the smaller hospitals seems sadly lacking, and if you are lucky you'll get sent back to Auckland to get the fix.

I think the regional hospitals would be comparible to anything in Auckland, possibly better in some ways because of the population stress the Auckland system is under. They won’t have the facilities for some of the more complex procedures but those get transferred anyway. Our families had superb care at our regional Hospital at Hastings.

raytaylor

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#2010372 8-May-2018 23:02

sonyxperiageek: How much do you reckon you will need by the time you're 65? I know it will different per person, but keen to hear others' values.

I make the following assumptions

- You want the current equivalant of $40k per year which would be comfortable if your house is paid off

- Inflation remains at 2.7%

- You currently earn $45k per year which increases with inflation

- You put aside the 3%+3% = 6% into kiwisaver and it earns a flat 5%

Then you need to top up your savings by the following amount each month.
Depending upon how you invest those other savings, and the return rate will depend which column you select

=== Monthly Savings ===

Current
Age | 5% | 8% | 10% (top up savings return rate)
30 | $1966 | $887 | $459
31 | $2040 | $950 | $508
32 | $2118 | $1017 | $562
33 | $2201 | $1090 | $620
34 | $2290 | $1168 | $685
35 | $2385 | $1253 | $756
36 | $2486 | $1345 | $833
37 | $2596 | $1445 | $919
38 | $2714 | $1554 | $1013
39 | $2841 | $1672 | $1118
40 | $2980 | $1802 | $1233
41 | $3130 | $1944 | $1361
42 | $3295 | $2101 | $1503
43 | $3476 | $2274 | $1662
44 | $3675 | $2466 | $1839
45 | $3896 | $2679 | $2039
46 | $4141 | $2918 | $2264
47 | $4416 | $3187 | $2519
48 | $4727 | $3492 | $2810
49 | $5079 | $3839 | $3143
50 | $5483 | $4237 | $3529
51 | $5951 | $4700 | $3979
52 | $6498 | $5242 | $4508
53 | $7145 | $5886 | $5140
54 | $7925 | $6662 | $5904
55 | $8880 | $7614 | $6845
56 | $10076 | $8808 | $8028
57 | $11618 | $10348 | $9558
58 | $13678 | $12408 | $11609
59 | $16568 | $15298 | $14491
60 | $20911 | $19644 | $18830
61 | $28160 | $26899 | $26081
62 | $42674 | $41429 | $40614
63 | $86255 | $85062 | $84274

Eg. Joe is 30 years old and earns $45k per year, which increases pegged to inflation.
Joe wants the equivalent of $40k when he is 74 years old (not 64 because inflation continues past 64)
Joe puts 3% + 3% into kiwisaver which earns 5% per annum

In addition to the kiwi saver, Joe needs to top up his savings by $887 per month if those top up savings are earning 8%
If Joe can find something to invest in which returns 10% then he only needs to save $459 per month

What I havent taken into account is
- Inflation of the kiwisaver portion where your 3%+3% contributions will increase over time
- Living past the age of 94

So the actual top up / secondary savings could be slightly less but the chances of living past 94 are increasing every day and so its probably best to use the above figures rather than assuming you can save less.

Ray Taylor

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raytaylor

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#2010373 8-May-2018 23:18

Now lets assume the pension stays.

In this calculation I have assumed that the pension is lower than it is now and you get the equivalant of $500 a fortnight + inflation.

This means we can subtract that $500 a fortnight from our $40k a year comfortable living target. So that means our new target is $27k per year + inflation

So with the same assumptions above, kiwisaver @ 3%+3% and returning 5% a year....

Then your top up monthly savings must be the following:

Current
Age | 5% | 8% | 10%
30 | $939 | $366 | $138
31 | $976 | $397 | $162
32 | $1016 | $430 | $188
33 | $1058 | $466 | $217
34 | $1104 | $506 | $248
35 | $1153 | $549 | $283
36 | $1205 | $596 | $322
37 | $1262 | $647 | $365
38 | $1324 | $703 | $413
39 | $1391 | $764 | $467
40 | $1464 | $831 | $526
41 | $1544 | $906 | $592
42 | $1631 | $988 | $666
43 | $1728 | $1080 | $750
44 | $1835 | $1182 | $844
45 | $1955 | $1296 | $950
46 | $2088 | $1425 | $1070
47 | $2239 | $1571 | $1207
48 | $2409 | $1736 | $1365
49 | $2603 | $1926 | $1546
50 | $2827 | $2145 | $1758
51 | $3087 | $2401 | $2005
52 | $3392 | $2702 | $2298
53 | $3756 | $3061 | $2649
54 | $4194 | $3496 | $3076
55 | $4734 | $4031 | $3604
56 | $5411 | $4705 | $4271
57 | $6288 | $5578 | $5137
58 | $7462 | $6749 | $6301
59 | $9113 | $8398 | $7944
60 | $11599 | $10882 | $10423
61 | $15755 | $15040 | $14576
62 | $24089 | $23380 | $22915
63 | $49136 | $48453 | $48002

So I guess the question is what do you think about the possibility of the pension?

Do we assume it will continue, or do we assume that artificial intelligence and robots could mean our economy might tank and the kids cant afford to pay our pensions?

Some people dont realise robots are already here for our jobs - and the most obvious is the self checkout at the Pak N Save, or the complete removal of checkout operators at the KMart

So I think its best to assume the pension wont be avaliable, or it will at least be means tested.

Student allowances are means tested against your parents - maybe pensions will be means tested against your kids?

Better to be saving more than you need.

And if your only getting ~5% return on your top up savings then your best to put that money into paying off the mortgage faster, because your property capital value is probably increasing by 2-3% per year so best to buy that share off the bank sooner rather than later.

Ray Taylor

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mattwnz

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#2010374 8-May-2018 23:37

raytaylor:

Some people dont realise robots are already here for our jobs - and the most obvious is the self checkout at the Pak N Save, or the complete removal of checkout operators at the KMart

Except there are often pricing errors, and a staff member has to then get you to rescan all your stuff again at a normal checkout, as they don't know how to override it. Happens to me all the time.

raytaylor:

So I think its best to assume the pension wont be available, or it will at least be means tested.

That is difficult to do, as it has to be done gradually so people have time to prepare. Raising the age makes more sense, but that will now be delayed if it happens.

But IMO the pension, which is an entitlement, is basically a state run version of someone getting sett up in their own retirement scheme. Many people have their own retirement scheme on top of the government pension. If it gets means or asset tested, it is like saying anyone who has a private run one, can also afford to live without their one. It kind of reminds me of the lifetime drivers license, which got cut by the government, because they decided we needed a photo one.

raytaylor:

Student allowances are means tested against your parents - maybe pensions will be means tested against your kids?

Will never happen. It is like saying that family members should be responsible for paying off the student loans of other family members that die before it is paid off.

raytaylor

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#2010375 8-May-2018 23:46

mattwnz:

raytaylor:

So I think its best to assume the pension wont be available, or it will at least be means tested.

That is difficult to do, as it has to be done gradually so people have time to prepare. Raising the age makes more sense, but that will now be delayed if it happens.

So assuming there is an announcement in 8 years time that says the retirement age will go from 64 to 65

Thats $40k+inflation worth of savings you now need to catch up on, and you also have less time to do it.

There are a number of unknowns is what I am trying to say. The best advice is simply to start saving more, now.

Ray Taylor

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eracode

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#2010383 9-May-2018 01:55

@raytaylor

In your table calculations above, I guess all of the figures are pre-tax - including the investment returns?

I think that your assumption alternatives of 8% and 10% returns would be extremely difficult (if not impossible) to achieve - as averages year in, year out - over any extended period. If returns of that magnitude could be achieved, it could only be done by taking excessive risk - at least under current market conditions.

Also, could you expand on what you mean by “... when he is 74 years old (not 64 because inflation continues past 64)“ - can’t quite follow that.

Are you assuming Joe retires when he’s 65 - or is that where your age 74 comes in?

What happens when he retires? Does he live off just the return on his nest-egg (and die at 94 with his capital intact) or does he live off the return plus run his capital down to zero over his lifetime from retirement to death? The answer to this - or the assumptions made on this - is important because it’s a major factor on how much capital is needed at retirement age.

Also, you adjusted the current income of $45k for inflation at 2.7% pa. Did you also adjust the required retirement income of $40k for inflation - over the 35-year period in Joe’s case?

Sometimes I just sit and think. Other times I just sit.

tdgeek

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#2010394 9-May-2018 07:01

They cannot means test the pension, although that does make sense. Because we all pay tax that includes social benefits, health and pensions being key costs. If they means tested pensions, then the uproar is "you taxed me but now wont pay me, so tax me less so i dont pay a share of my pension as I dont now get it" And that will encourage less retirement savings. Or avoidance measures.

It would be interesting to list every possible job and what ones can be automated.

frankv

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#2010395 9-May-2018 07:04

Average NZ life expectancy is currently 80 for men, 83.3 for women.

Thinking just about myself... I don't have any reason to think that my life expectancy is any better than average, so (assuming a 65 retirement age) I plan for 15 years' retirement. I own a house which I can reverse-mortgage, so I can spend 1/15 of my house's value each year. A benefit plus spending savings to top up to (say) 50% of current salary (no tax to pay, no employment related expenses). Reassess at ages 70 & 75 (& 80); cut back on my spending if it looks like I'll survive beyond 80.

Taking my wife into account; she's 7 years younger and (on average) will live about about 3 years longer. So the above should be modified to assume that she will earn for 7 years of my retirement and die 10 years after me.

An early death by either/both of us will be a financial windfall for the survivor/our children. A later than average death could see one or both of us as beneficiaries for the last few years of our lives.

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