OPINION: These are scary days for an awful lot of people who five years ago were confidently looking forward to a comfortable retirement without a financial worry in the world.
Many of these people, in their late fifties and beyond, did everything right. They built up and sold businesses and farms, saved hard in jobs that allowed them to do so, and others retired with sizeable lump sum superannuation. Some inherited money.
On reaching say 60, many sold their family homes moving into an apartment where they boasted that they'd never again worry about property maintenance, and have time for golf, bridge, or whatever. They had money for overseas holidays, dining out and other extras.
This group tends to be ignored by much of the media, and by economists, who ignored a key reason for last week's fall in retail sales statistics: that many older people simply have far less money to spend. This is becoming obvious in the charity sector, where bequests and donations - many of which traditionally come from older people - are shrinking.
Understandably my younger colleagues - like much of the working population - see the world differently. Thus news stories focus on the difficulties younger people find in financing the purchase of their first home, mortgage rates, the rising cost of living for families with children, credit card bills and so on.
Older people understand this. They've been there, done that.
Watching television news you wouldn't know that more people are savers, rather than borrowers. They want interest rates to go up - not fall sharply as they have been doing. News that home mortgage rates are falling won't affect this group: they probably paid theirs off long ago. But it will be an unwelcome reminder that the banks will soon be lowering the interest rates they get on their deposits . . . again.
The world changed for many in this large and growing group of retired and semi-retired people, including those in retirement homes, in 2007 when the global financial crisis struck. Since then their incomes have been mangled by interest rates falling from around 9 to 3 per cent in some cases. Some have been badly hit by costs related to leaky home syndrome and the need to rebuild apartment blocks where many now live.
The Christchurch earthquake has added to their problems. Insurance costs have rocketed, as have body corporate and related fees. I've heard of one apartment block on reclaimed land in Oriental Bay where body corporate and other costs have risen from $20,000 to $60,000 a year: the owners face a huge and unexpected rise in outgoings most of us could not afford. The higher costs make it harder to find a buyer should they decide to sell.
This is not just a Wellington problem: on a recent trip to Whanganui I encountered people seriously concerned that rocketing insurance demands (some can't get it) will lead to the wholesale demolition of some fine heritage buildings in this splendid old town. Even when insurance premiums are manageable, other people, who stayed in their own homes, are finding council rates are rising sharply.
Initially the hardest hit were the thousands who invested in the finance company sector, where up to $6 billion in savings were lost. Many in this group were smaller savers, though wealthier folk, such as retired farmers, invested substantial amounts in Hubbard companies.
Lightning appears to have struck this better heeled group again with the grave problems with the David Ross group of companies, where early estimates say that 900 plus investors had given him $449m to invest. One farmer is said to have invested $8m from the sale of his farm, and is said to be "devastated".
Wellington is buzzing with gossip that some well-known individuals invested in his company, although some rumoured names stretch credibility. Many learned of his company from friends at golf and other sporting clubs: Ross circulated widely in the investment world. Presumably they believed he could somehow give them extremely high returns. Logically this seems a tall order in today's climate with the probability he needed to take considerable risk.
The last couple of months have been tough on risk averse people who want the security of fixed interest securities rather than shares, and had been enjoying high yields from the likes of GPG, Auckland International Airport and the Auckland Savings Bank bonds.
This ASB issue is an example of what is happening in the fixed interest markets. It raised $370m in a 10-year bond five years ago at 8.77 per cent. At the time this was considered a fair, if not exceptional, rate. The ASB reserved the right to call (that is, terminate it) after five years. Had conditions been different, the bank would have simply let it run on for the full 10 years. Today it is much cheaper for the bank to borrow from the public, and offshore, at much lower rates: so it terminated it, leaving investors scrambling for other safe investments. The shrinking fixed interest market is one reason for the rush for Fonterra units, which closes today. Many people missed out or had their applications scaled back, like the man who wanted to invest $200,000, but got only $10,000 worth.
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