Since 1975–77, life expectancy at birth has increased by 6.7 years for women and 9.0 years for men. While differences in mortality between men and women still remain, their longevity gap has narrowed. Newborn girls in 2005–07 can expect to outlive newborn boys by 4.1 years, down from the peak of 6.4 years back in 1975–77.
The latest abridged period life tables, produced for the total population, indicate that the life expectancy at birth was 82.4 years for women and 78.4 years for men for the period 2007–09. Source Statistics NZ -Demographic trends 2010.
The evidence seems clear enough - we are living longer and this trend is likely to continue.
There are many contributing factors to this trend including early diagnosis and detection of conditions, improved medical management and treatment, and the continual development of new methodologies, which appear to be advancing at an increasing pace. Add to that our smarter dietary and lifestyle choices, and it is easy to see why we are all living longer than our parents and grandparents.
For many, 65 years of age remains the target retirement date, while others plan a staged entry to full retirement, choosing to continue to work part time for a number of years past that age. It seems clear too that once retired we are a lot more active. We finally have time to do all those things we have always wanted to do, but put off due to work pressures. Put simply doing more usually costs more.
So what does this all mean for you? No matter what your retirement plans might be, there is a pretty good chance that your plan is going to need to support you for a bit longer than originally intended. Undertaking a regular financial check-up is just as important as getting a regular medical check-up. The need for additional financial support over an extra five years in retirement , at a level of say $50,000 net per annum, will consume retirement capital of approximately $230,000 assuming a real rate of return of 3.00% (Gross return 6%, less tax, less inflation and any fees). Naturally the longer you give yourself to accumulate that additional capital, the easier it will be.
There are also interesting trends emerging in the housing sector too. Two ‘empty nesters’ rattling around in a five bedroom home may suit some, but for many downsizing from the large five bedroom plus family home, either by choice or out of necessity, is a key strategy in their retirement planning. Unless you are planning on moving to the provinces, the capital released from this process might disappoint. Invariably “downsizers” are looking to relocate closer to all the “essential” amenities into more compact and often more modern dwellings, which all come at a cost. Very often the amount of freed up capital is significantly less than expected. With a disproportionately large number of baby boomers looking to retire over a fairly concentrated period, there is also the potential for some over-supply in that particular market segment too.
Previously anticipated earning rates on retirement funds have also changed. Just look back five years or so at the rates being forecast by many of the large insurance companies and superannuation funds, and compare them to the current rates of return being earned on your own plans. Events such as the GFC and Sovereign debt issues have all had an impact on world growth, which in turn impacts on financial and investment returns.
We also anticipate some changes in the eligibility ages for NZ Super. For some time now the Retirement Commissioner has been headlining the whole affordability issue to Government. Obviously any change will have to be signalled well in advance, to allow time for people to make alternate arrangements.
The first of the original KiwiSaver plans are about to mature this year. There is no doubt that the introduction of KiwiSaver has been a phenomenal success and represents an important step in the recognition by many New Zealanders of the importance of retirement planning, however many New Zealanders still face the potential for an under funded retirement.
So what can we expect in Budget 2012? As far as NZ Super and KiwiSaver are concerned, the government are unlikely to tamper much more. But generations X&Y be warned, you and you alone must take responsibility for your own retirement plans. With an increasingly ageing population the government is simply not going to be able to afford to fund your retirement.
We recommend regular retirement planning reviews. Contact an Authorised Financial Adviser today.
Roger Sutherland
Director, AFA
Grant Thornton Wealth Management Ltd
D +64 (0)9 308 2974
M +64 (0)21 411 924
E roger.sutherland@nz.gt.com