Opinion & Analysis
I'm disappointed. Retired people have been gaining access to their KiwiSaver money for several months now, but there's no emergence of good new products to help them manage their savings.
Many retired New Zealanders spend too little. They retire with a chunk of savings and then spend only the interest it earns, or perhaps a little of the capital. They die with considerable savings, plus a house. The kids inherit heaps - and these days it's often just one, two or three children to spread the money around - while their parents pinched pennies in their old age.
When someone suggests to these retirees that they live it up a bit, they baulk. "What if we live a long time and run out of money?"
One way to address that question would be to buy an annuity. You give the company a lump sum and they pay you a regular monthly amount until you die. If you die soon, they do well out of it. If you live for many years, you do well out of it.
Twenty years ago, New Zealand had a competitive annuities market, but it's now down to one provider, Fidelity. For several reasons - including tax and a lack of suitable long-term bonds for the companies to invest in - annuities are not seen as a very good deal. But that could change, perhaps with government support.
Another way to free up money in retirement would be to take out a reverse mortgage or home equity release. You receive a lump sum or monthly payments, and you make no repayments on the loan. The debt grows, through compounding interest, and is repaid when you sell your home.
It's a way of making use of at least part of the money tied up in a house.
Several companies offer these products, but they're not popular, perhaps partly because retirees don't like to see a growing debt. But as long as you borrow only a small portion of the value of your home, that keeps the debt under control.
Another reason for the lack of popularity is retirees' reluctance to eat into their children's inheritance. My response: You earned that money, so it's yours to spend. But do explain to the kids what you're doing, so there are no nasty surprises later.
If reverse mortgages don't sit well with you, maybe there's another way to do this. Many children of retired people are at a stage in life when they are saving. Perhaps the children could buy all or part of their parents' home, through monthly payments over the years.
This could get tricky if one child can afford this but another can't. The better off one will end up with more of the house. But where there's good will and clear communication, it could work - keeping in mind that the goal is to improve the parents' standard of living in retirement.
How about some financial institution helping people to set up such a plan - including legal documentation and help with communications?
One further thought: Some councils offer rate postponement plans, under which retired people don't pay rates. Instead the debt accumulates, with interest, and is paid off when the house is eventually sold. This is not at the expense of other ratepayers because interest is charged.
It would be good to see this extended to all councils. And perhaps similar schemes could be set up for house insurance, health insurance and other big bills.
One way or another, New Zealand has got to come up with better ways to enable retired people to spend more of their wealth.
Mary Holm is a freelance journalist, part-time university lecturer, member of the Financial Markets Authority board, director of the Banking Ombudsman Scheme, seminar presenter and bestselling author on personal finance (see www.maryholm.com). Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary's advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it.
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