Surviving in Retirement

Courtesy of My Generation.

Picture: Photographer Elizabeth Goodall may visualise Lotto or a rich husband, but acknowledges that increasing her client base is likely to be a better prospect to ensure her retirement.

The Retirement Commission and other advisers are fond of telling us we need several hundreds of thousands of dollars to retire. It may be true, but it’s not that helpful to those who haven’t a show in hell of achieving it. Gill South goes in search of real advice for baby boomers who will struggle to survive in retirement.

“My only chance to retire is if I win lotto or marry a rich man.”

The words of a smart, talented working woman in her mid 50s who is convinced that she needs $800,000 to retire at 65.  Surely things shouldn't be that bad for her?  

For many women and men out there, the 50s can be a frightening time, with retirement fast approaching, and a feeling of powerlessness as their savings fail to accumulate.  It's not always their fault. Those in this age group have often gone through some kind of business failure or divorce, which has taken them a step or two backwards.

Financial planner Deborah Carlyon of Stuart+Carlyon recently advised a woman in her late 50s whose husband suddenly asked for a divorce. It was a huge shock. She came to Carlyon to help her to make some decisions about how she could prepare for retirement with limited savings and time.

They brainstormed about what she might do next. “I came up with five ideas, she came up with three. It was just empowering to see,” says Carlyon.  

The thing is to try to find a career or job that you are a) physically able to do and b) that you enjoy, that's not a task. That's the challenge for a lot of people,” says the adviser.

Having high expectations in your 50s about retiring on the dot of 65 is not realistic any more, says Carlyon. Retiring at 70 is common in the United States and it will become like that here. In New Zealand if you can work past 65, while getting NZ Super at the same time, it can work very well. “That's $1000 a month net to spend and if you keep earning from 65, it helps a lot.”

If you are a woman on your own, you have to be lateral about earning a bit extra, she says.

Carlyon has a client who is 82, and was widowed at 51.  While some were talking to her about going into a rest home, she said she'd much rather bring in a foreign student into her own home for the stimulating company.

Carlyon recommends talking to an independent adviser.  “No one will ever put money away for the future unless they have an end goal that's easy to see.”

Planning a holiday in a year is easy, but what am I going to need in 15 years time?”

“It's about starting to put numbers to things – at least you need to have a framework,” she says.

“It is easy to feel cornered at this stage in your life.  Nobody likes that.”

HR consultant Annie McKenzie and her partner John, a couple in their late fifties, have two divorces each and one business failure behind them.

“Our chances of saving any money between now and age 65 are zilch,” says Annie.

On paper the couple seems to be doing okay, they earn a monthly salary of $6000 with John working as a self-employed landscaper.  

“It sounds massive but when you look at our budget it actually isn’t. And I am very aware that I’m the oldest consultant on the block and my job may not last until I’m 65,” says Annie.

One of the couple's main extravagances is their property situation. They own a house in the country on which they have a $275,000 mortgage. For now they rent this house out and rent in town because of Annie's job. While the income they receive every month from their house in the country is $1200, the mortgage on the house is $1800 a month, and meanwhile they are paying $1400 a month on a rental in town.

They have a small amount of savings and Annie contributes to KiwiSaver which, provided she can continue to pay into it until age 65, should yield about $60,000.

To give the couple credit, they have formed a plan. “For a long time I just refused to think about this because it was far too scary, but then I decided I needed to get a handle on it,” says the HR consultant. Their intention is to sell their  property and buy down in another, less desirable country area and try to re-establish themselves with a smaller mortgage – they are hoping between $50,000 and $100,000, which, provided they get a reasonable interest rate, could cost them as little as $150 a week. Their aim is to buy a large section so they can have a productive garden and hens. The KiwiSaver payout will enable them to pay off or reduce their mortgage.

Jeff Matthews, senior finance advisor at Spicer's Wealth Management agrees that owning the house in the country is not working for the couple. With a shortfall of $600 a month between the mortgage payments and the rent in the country house, and a reasonable rent to pay in Auckland, they’re “haemorraging money in several directions”.  They should just concentrate on being in town for now, he says. He understands their desire to get a foothold in the country but it is has been a bit ambitious given their circumstances.

“Sometimes it is just about sitting down with a fresh pair of eyes,” he says.  “The property is not self-funding, they are barely paying the interest (on the mortgage),” he points out.  If there was a chance the property would rise in value substantially it might be worth hanging onto, because it would be worth the risk, but that's unlikely for at least the next three or four years, says Matthews.

Matthews understands the couple's concern about John's ability to earn after a few more years. “Who's going to be wanting a landscaper who’s 70?” One option for John is to employ people in his business and to do the administration side when he gets older, while maintaining ownership of the company. “But he might not want to manage people,” says the Spicers adviser.

Retirement Commissioner Diana Crossan, say each individual needs to review it for themselves. The Sorted website asks you to answer four things; how many years you will have in retirement; the lifestyle you want to have; whether you are single or living with a partner and whether you own your own home or rent when you retire.
 
One suggestion is to base your annual retirement income needs on 70 percent of the annual income you expect to be receiving just before you retire.

The estimation on Sorted is just a formula for people, says Crossan. It doesn't necessarily reflect more complicated real life. Families often work together to sort things out.

“People don't retire on one day as they used to,” she says.  It is much more likely that somewhere in your early to mid 60s there is a transition from full time work to a more flexible schedule.

Even if you continue working one day a week, that might pay for the power bill.

Meanwhile companies are making more efforts to keep on their reliable, older workers happy and will offer them more flexible work schedules these days.

“Companies that manage to attract these people will be better off – their experience and skills will keep them going,” says Crossan.

In your 50s there is still time to do some training to enhance your earning power.  Training that allows you to get an income is a good idea, says Crossan.

One thing you don't want to end up with in your 60s is debt when you have no or little income coming in. Talk to your lender about debt consolidation, says the Commissioner.

It's a time of change and rethinking, she says.  “Everybody's lost money in this global financial crisis.”

The Retirement Commissioner acknowledges that there are some things you just can't plan for. “Some people do have what we call a life shock and it's very hard to recover from in the last 10 years of your working life.”  

Elizabeth Goodall, a professional photographer based in Auckland, has had such a shock.  A couple of years ago she suffered a severe blow to her freelance business in Dunedin when a fire in her apartment/work studio destroyed everything. She didn't have business insurance.

Another decision which has cost her money was her decision to move from Dunedin to Auckland. While her main motivation was that she didn't want to be “cold and old”, she felt there would be more work opportunities in the big city, and she’d be closer to her daughter and grandson.  

Although she has no regrets about the move she has found she can't yet afford the house prices in her preferred areas – Ponsonby or Herne Bay. Currently renting in Pt Chevalier, she has firm plans to buy within the next two years while banks will still give her a mortgage.

“I would love to have my own home again. If I'm not busy I renovate. It's part of my personality which has been put on the shelf.”

“It's not something which makes me depressed. Good things come along,” she says.

One of those might be the opportunity to buy or rent a property with a number of like-minded friends.  She says she has five single girlfriends in Auckland. “What do you do? Share? It may come to that. Luckily I love company.”

An experienced photographer with regular clients, Goodall estimates she works 20 hours a week at the moment. She knows she has the capacity to increase that and says age is not a barrier because her experience is valued by her clients. For example, she’s often called on to cover traumatic stories which require a mature and intuitive approach. The same applies to wedding photography, whether for a women’s magazine, or directly for the client.

While photography is her passion, Elizabeth is prepared to find different ways of earning. Until recently a part time role in an art gallery gave her extra income, new experiences and more opportunity to interact with the public.
 
The 55 year old has not set any long term goals but as someone who loves to travel, she is intent on going to Barcelona next year. “I’m really big on visualisation,” she laughs.

With her aim to buy a home and a desire for some longer term goals, she plans to consult a mortgage broker and possibly a financial adviser.

“I do flounder a bit at times so it’s important to speak to somebody and talk about some goals.”

Joan Baker, author of “Smart Women, Smart Money” and “A Man is not a Financial Plan” says: “I'd be suggesting setting a tight budget for living expenses, and to think very carefully about her business. What aspects of photography are going to grow? And she really needs to look to set up some savings goals.”  

“Come hell or high water, she should look to have another $5000 in savings by the end of the year, socking away $400 a month, putting it on automatic payment.”

The good news is, with women's age expectations past mid 80s, if you are 50, you are looking at another forty years of life ahead of you. “If you say I'm looking at a 40 year issue, there is still a lot of time to plan for. There is still another 20 years of earning potential,” says Baker.  

“The most important thing is if you are not working, you should be, and if you are working, how can you earn more income? Savings are very important. Every $1000 now is going to make a very big difference to your life in the future. ”

One of the problems for babyboomers is their “sense of entitlement,” says Baker.

A lot of people are living in places they can't afford and living a lifestyle they can't afford. All of this is a trade-off between today and tomorrow.”  

Large numbers of men and women in their 50s have still not have joined KiwiSaver, says Baker. “It's a complete no-brainer.”

The wealth coach, an experienced businesswoman, advises people in their 50s to look at their earning power.  Is their salary keeping up with the average wage for their job? Some  people, women especially, just accept that they are being paid a certain amount. “But if you are able to get a raise, there's a big difference between earning $41,000 and $48,000,” says Baker.

At times like this, when your employer is reluctant to hire someone new if an employee leaves, Baker suggests offering to take on some of their responsibilities and winning a raise at the same time.

And the weekly Lotto ticket? Forget it, she says bluntly. “You’re better off putting $10 a week extra into KiwiSaver.” She has the same advice when it comes to rich men.

“Rich, single men are pretty thin on the ground. I don't think it's a good strategy.”

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