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Half Those Alive May Regret Retirement

Half the population now alive may regret reaching retirement

The New Zealand Retirement Commission says that by 2031, 65 year old males will be expected to live until they're 84 and women until they're 87 - meaning they need to be able to support themselves for at least 22 years or longer, writes International Financial Planners Adviser Fred McGowan.

Twenty years ago, reaching 100 years of age was considered amazing enough to warrant newspaper articles and a telegram of congratulations from the Queen of England, but today there are so many people living beyond 100 that it no longer seems important.

Having an income to finance a reasonable lifestyle for between 20 and even 35 years in retirement - assuming the average person still wishes to retire at 65 and not work for longer - has some powerful implications for quality of life, health and financial planning.

To begin with, the stakes are much higher than simply being able to 'get by' - particularly for the consumer driven Baby Boomers and Generation Xers who will be most effected by changing demographics, like an ageing population.

The assumption by more than 50 percent of New Zealanders that they will be able to live a reasonable lifestyle on a Government Guaranteed Retirement Income (GRI) needs closer scrutiny.

The current level of GRI for a retired couple, after tax, is $19,600. In today's environment, this is already the kind of income that has many senior citizens eating toast and spaghetti day after day - and living with the frustration of not even being able to even afford meat on a weekly basis. Who would want to live like that for more than 20 years?

Even though some of the current generation of supperanuitants are struggling, many are still able to get by on the GRI because they lived through the depression, when going without and saving money was a way of life.

But Baby Boomers and Generation Xers are used to the comforts and benefits of a consumer driven society and will, in retirement, become a generation that will have to make massive sacrifices to survive - for longer.

Already, according to Statistics New Zealand, the average household is spending more than it earns - in other words, living above its means.

Taking into account that the Government's GRI is designed to provide for people in the lower income bracket, and not the average working New Zealander, the situation appears decidedly more bleak.

The New Zealand Retirement Commission recommends that if you want to continue your existing lifestyle into retirement, and you are debt free, you should aim for 70% of your current income. However, the average family is far from debt free.

Research tells us that the average annual expenditure today for a middle-income couple is in the region of $39,000 per annum after tax. When this is compared to a GRI of $19,600 per couple per annum, there is a shortfall of around $20,000. This does not include replacement of cars, whiteware, furniture, holidays, 'toys', and inflation - during, remember, a period of 20 to 35 years.

The average person would probably not want to lower their standard of living when they retire - after all, they don't want to stop eating and drinking, taking holidays, buying clothes, visiting friends or relatives and enjoying themselves in other ways.

Obviously it's going to be difficult for someone 75 years of age who finds they are in excellent health, but running out of money.

The traditional retirement parachute, a large house, is unlikely to fetch a healthy profit in any future scenario - and the smaller home preferred by retirees will probably cost almost as much.

As the percentage of the population over 65 rapidly increases, there will be more retired people looking to sell their big houses.

Modern couples enjoying their working environment, lifestyle, and the freedom of a dual income, means that fewer couples are having families, - and those who decide to give it a go, are opting for fewer children.

This is all bad news for the 'about to retire' groups.

Lower demand for their big, old homes - at a time of increased demand from the younger generation for the same smaller, maintenance-free homes - will probably result in little, if any, gain for future retirees trading down.

According to Statistics New Zealand, one in four people in New Zealand will be older than 65 years in 2051, and nine times as many over 90 years of age than there were in 2001.

What does this mean? Quite simply, it means that this will probably be the straw that breaks the back of an already overburdened state health system. It also means problems for a smaller working population, unable to cope with mounting taxes and a top-heavy superanuitant group.

Young people will be more likely to go looking for greener pastures overseas, and taking their taxes - needed to fund superannuation and the state health system - with them. Added to this is that many retired couples will need to fund overseas travel if they want to see more of their children and grandchildren.

"The significant growth of the older age group has direct implications for health expenditure, because there is a significant rise in the incidence of disability with age, and an increased need for health treatment and care, and social services," says Mansoor Khawaja, Chief Demographer New Zealand Statistics.

The reality is that a longer life span comes with some fine print, like greater expenditure on long-term care. A person's body eventually runs out of the energy and strength required to cook and clean, and popular choices like retirement villages - with high care and medical facilities - are very expensive.

Fred Astaire once said to make a success of old age, a person must start young. Bearing in mind future scenarios, people should be asking themselves now what kind of lifestyle they will need - or like to have - and what it is that they have always longed to do, but never had the time for while they were working?

The next step is to seek qualified assistance to develop a clearly understood plan that identifies the costs and how to provide for them.

To get a complete picture about their financial resources, people need to accumulate information about what they own, what they earn, what they spend and what they owe, plus details about their insurances.

Planning a financial future opens up possibilities and opportunities. It means that when a person retires, he or she has a range of choices, are not a burden to their children, and are not at the mercy of the Government.

Begin planning now, so that you can look forward to an extra 20 years doing the things you most want to do.

Fred McGowan is an advisor with International Financial Planners, providers of independent, hourly fee advice to help you reach your financial goals and financial independence. He can be contacted (09) 302 0119.

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