Retirement Planning for the Un-Retired

 

By David Keys (General Manager)


News that Australia is to push its entitlement age for the Age Pension out to 67 brings recollection of a book I read some years ago. Mitch Anthony’s book, ‘The New Retirementality’ – (Dearborn Financial Publishing, 2001) asserts that the idea of retirement as an “economic event” is no longer relevant to what baby boomer and future generations may be planning (or forced) to do. They have observed their parents stepping out of the workforce which often meant “…transport to the fringes of society”.

It may not be from work itself that people want to escape, but the particular job they are doing. Domestic relationships may also develop a new dynamic. Spouses occupying the same space 24/7 may discover it is too much of a good thing!

A study by the University of Michigan* found the most powerful predictor of life satisfaction immediately after retirement was the breadth of retirees’ social network. Health and wealth ranked somewhat lower. Work is a key part of our social contacts and relationships.

To quote from Anthony’s book, “Retirement is a spectator sport. I don’t want to sit there and watch the world go by. I liked being in the game.”

If the concept of retirement as an economic event was dated in 2001, it is even more so now. Recent sharp declines in asset prices and interest rates have put a hold on the plans of many expecting to retire in the past year and quite possibly for some time to come. However, this may not be a bad thing.

Living in NZ Pays Off

Social fulfilment aside there are also sound economic reasons to continue to work – at least in something you enjoy doing that gives you the flexibility to pursue other interests.

Unlike Australia or other countries where the state pension is means tested, our generous NZ super is given to (nearly) all from age 65, irrespective of assets or income. Even those who accumulate nothing by that age can do relatively nicely – if they can continue to find paid work. 65 isn’t so old these days. 

People in their sixties have lots of life left and are often fit and well compared to the same age group of previous decades.

If one assumes that pre-65 year olds can live on income from their employment, saving your net NZ super and continuing to work for several years beyond that age provides a triple benefit;

• Any existing retirement savings continue to grow, rather than being drawn down.

• A shorter period to fund, hence a smaller lump sum required to provide income during retirement.

• NZ super saved increases your lump sum to provide more income when employment income stops. This provides greater income when you really need it.

The table below illustrates the payoff.

Payoff from Saving NZ Super and Deffering Retirement
Age paid employment income stops	Additional lump sum accumulation from saving ALL NZ super	Additional, after tax, annual Income generated from lump sum accumulated
67	30,300	1,981
70	78,061	5,956
72	111,514	9,634
75	164,246	17,926
Assumptions: All employment income is spent Nett NZ super @ $15,000 p.a. All NZ super is saved from age 65 to the age paid employment stops Death at age 85 Additional, annual income assumes no residual capital at age 85 Inflation adjusted (real), after tax investment returns of 2% p.a.

For example, David receives NZ super from age 65 but elects to work for another five years and accumulates all of his NZ super until age 70. This provides an estimated accumulated lump sum of approximately $78,000. The lump sum provides an estimated after tax, inflation adjusted income of nearly $6,000 p.a until age 85 (fifteen years). This income is over and above income from NZ super or other savings.

Contact your PIS (NZ) financial adviser to discuss retirement planning, “un-retirement” planning or for advice on KiwiSaver and NZ super.

*Source | John Commins | Professional Investment Services

Did You Know?

Many commentators and politicians are comparing the current Global Financial Crisis with the Great Depression of the 1930s. At that time, John D Rockfeller said:

"These are days when many are discouraged. In the 93 years of my life, depressions have come and gone. Prosperity has always returned and will again.”

Source | www.wikipedia.com

Protect Your Investments – Why You Need a Will and Enduring Power of Attorney

It is important to ensure that if anything happens to you, your loved ones are taken care of and your assets are protected and dispersed according to your wishes. 
 
Now is a great time to reassess your goals for the future, especially from a financial perspective. A key aspect of this strategy is taking another look at your will and estate plan.

It’s not enough to simply make a will and then forget about it, time and circumstances may change drastically what you own, to whom you wish to make bequests and how you wish to make them. By making sure that your will and other important documents such as your Enduring Power of Attorney (EPA) are in order, you will ensure your wishes are carried out, safeguard your beneficiaries and add to your own peace of mind.

Look back over the last year and ask yourself if there have been any major changes in your life that could affect your will, for example:

• Has your relationship, financial or health situation changed?

• Do you have children whose marital status or personal situation has changed?

• Have you had a child or grandchild?

• Have you bought a house or any other major asset?

• Have you set up a family trust?

• Have you received an inheritance or another sum of money?

• Have you changed your mind about passing special items of significance to certain people?

• Is the executor of your will still appropriate?

• Do you wish to make a bequest to a charity?

It’s only right that you decide what you want done with your assets when you pass away. However if you don’t have a will, you lose that power to decide what happens, and instead the law decides for you. Your loved ones could miss out on their inheritance, plus face a lengthy court application to appoint who takes care of your estate, all because you hadn’t put the right plans in place.

Law Changes to Enduring Powers of Attorney

(As discussed in the November/December edition of Timely Tips)

Over the last year there have been significant law changes within the estate planning industry and recently, one of the most important has been to Enduring Powers of Attorney (EPA).  Along with a will, an EPA is a crucial legal document that you should have in place.

An EPA gives a person or organisation the authority to make decisions on your behalf if you are unable or do not wish to. There are two types of EPA – one specific to your personal care and welfare and the other specific to your property. You may choose to have one or both.

On the 26th September 2008, new laws governing EPAs came into effect. These laws came about after a Law Commission report in 2001 entitled Misuse of Enduring Powers of Attorney, indicated some serious issues existed around the misuse of EPAs - including undue influence on a person to grant the powers, failure to consult, neglect and theft. 

As a result there have been significant changes to the preparation and execution of EPAs as well as imposing stricter requirements and stronger duties on attorneys in carrying out their functions. While existing EPAs are still valid, the new requirements for attorneys apply to both existing and new arrangements. In particular, all attorneys now have a duty to keep records in respect of their actions as an attorney. There are also new obligations for determining mental capacity. 

If you don’t have an EPA, managing your affairs can be a nightmare. It is not as simple as your family or friends stepping in on your behalf. If they have not been appointed they must apply to the Family Court before they can do anything. This can take time and will cost more than if an EPA was in place and the Court may appoint someone who you do not want. An EPA means that you keep control of who manages your affairs.

Being organised and planning for the future is important. If you haven’t reviewed your plans in the last few years, then now is the time to get sorted! 

For more information talk to your PIS (NZ) financial adviser who can put you in touch with a specialist from Trustees Executors.

Source | Trustee Executors

About Our Services

The Group has offices in all the major cities as well as an extensive regional network. Our highly skilled and trained advisers will assist you in determining the financial strategy that is right for you.

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• Wealth accumulation 

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Disclaimer

The information contained in here is of a general nature only, and does not take into account your particular objectives, financial situation or needs.  Accordingly the information should not be used, relied upon or treated as a substitute for specific financial advice.  Whilst all care has been taken in the preparation of this material, no warranty is given in respect of the information provided and accordingly neither Professional Investment Services nor its employees or agents shall be liable on any ground whatsoever with respect to decisions or actions taken as a result of you acting upon such information. A disclosure statement is available on request and free of charge.

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Published 3rd Jun 2009

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