The couple who lived too long
Running out of money in their retirement years forces some people into desperate measures.
Asked why they needed money, the response from an Auckland couple was heart-breaking: “We didn’t expect to live this long.”
For Beryl and Edgar Charles (not their real names), life in their late 80s had taken a grim turn. After running out of savings, the long-retired business owners were seeking a way out of their predicament – and had applied to borrow cash to tide them over. Turned down because they didn’t have enough income to meet repayments, the couple were left having to ask their family for help – a step they were reluctant to take as they never wanted to be a burden on them.
“We have always been independent and thought we had our retirement well sorted, but we really didn’t expect to live this long,” says Edgar.
Their story is an example of an all too familiar scenario playing out among a growing number of Kiwi retirees. Better health and longer lives are resulting in more people outliving their income.
The problem is likely to deepen in the coming years. The most common age of death has risen over the last 20 years from 78 to 87 research from late last year shows retirees were generally short of about $218 a week to live comfortably, even taking into account the state pension and KiwiSaver. KiwiSaver is rated by most as having done a good job but is designed to accumulate savings, not to help people with drawing down savings in retirement.
Meanwhile a financial wellbeing survey commissioned by ANZ this year revealed about a quarter of New Zealanders have no savings, and a BNZ Financial Futures study showed 31 per cent of Kiwis plan to keep working beyond 65 for financial reasons. Kiwis are not alone. In the US, a survey found that 48 per cent of Americans admit they will not have enough money to survive in their golden years. Chillingly, the survey revealed 22 per cent said they would rather die than not have enough cash to live comfortably in retirement.
In New Zealand Tom Hartmann, the personal finance editor of the Commission for Financial Capability (CFFC), says increasing lifespans are one of the variables that make retirement planning a challenge.
“Alongside the question of how much we’ll need, not knowing how long we should be planning for can paralyse us and lead us to simply kick it all down the line a bit longer,” he says. “People underestimate how long they are going to live.” Hartmann says life expectancy may climb even higher in the future: “Biotech breakthroughs may mean not just increased lifespans but increased health spans as well - where we not only live longer but live better.”
Because of this Hartmann says the CFFC is trying to get people planning for retirement earlier in their lives - and encourages a careful investigation of all options.
One suggestion is to invest in a life income fund. Life income funds are relatively new to New Zealand and give retirees regular income from a lump sum investment. Combining investment and insurance, the funds provide customers fixed fortnightly or four-weekly income, tax-paid, for the rest of their lives.
“Because it is difficult to predict what the market is going to do over time, these products can provide a degree of certainty for people and take away the ‘up and down’ of the market,” Hartmann says. “It’s like still getting a pay cheque.”
But Hartmann says there are key questions people need to ask when considering or researching a fund of this nature.
“Firstly, by my calculation, an investment of $100,000 would typically return a payment of about $200 per fortnight. But 25 or 30 years down the road that $200 may not be worth the same, so people need to ask whether the fund adjusts for inflation or not.
“If you die early you will also want to know if the investment can be passed on to your estate and, thirdly, you need to ask what happens in the event of a company failure. Will the payments continue?”
Hartmann says people need to go in “with eyes wide open” and while it may be hard to tell precisely how many years they’ll need to fund, above all they should be planning now so they avoid the predicament that faced Edgar and Beryl Charles.
One of the superannuation products Britannia offers is its Lifetime Income Fund. This fund combines investment with insurance to provide a retirement income for life. No matter what happens to interest rates or financial markets, your income from that fund is insured to last the rest of your life. For more information go to britanniafinancial.co.nz/lifetime-income-fund
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