Early savings action key to glittering golden years

As the nation faces a looming pensions crisis, nearly three-quarters of New Zealanders have not even considered their retirement savings goal.

The revelation was made by the ANZ quarterly survey released this week and Bay of Plenty financial experts say they are not surprised. One said the findings were indicative of a general state of financial illiteracy.

The survey found just 29 per cent of Kiwis had actively considered their goals for financial wellbeing in their golden years. A third of the 825 people surveyed, aged 15 to 64, were not currently saving towards their retirement at all.

Mark Lister, head of Private Wealth Research at Tauranga-based Craigs Investment Partners, said it wasn't wise to assume the Government would take care of people on retirement.

"The country has a looming problem. The cold, hard reality is we've got an ageing population. There will soon be an awful lot of retired people creating a massive tax burden on the young to pay for their pensions.''

Mr Lister said ensuring comfort in old age was down to taking action now.

"People have to take ownership of it. There seems to be the view that it's all a bit scary, confusing or too hard.

People think it's the domain of the wealthy and it's not something they can do anything about. They have this `someone will look after me anyway' attitude.

``It's indicative of New Zealand's financial literacy across the board. It's really poor here. They don't teach it in schools and parents don't have a lot of idea so they don't tell their children how to save, manage or invest their money wisely.''

There were simple steps people could take, he said. ``You don't have to be rich to be thinking about it. KiwiSaver is brilliant and everyone should be in it. It's been a really good initiative because it's got people talking about retirement planning.

``You don't have to be earning $100,000 a year. You can put $10 or $20 a week aside and you'll be surprised what that can turn into 10, 20, 30 years down the track.

``There are other schemes as well as KiwiSaver. For example, we run one called Start, which is a drip-feed savings scheme where you can put as little as $100 a month, which is only $25 a week, into share investments. It's about finding the right product for you.''

Mr Lister said the golden rule was starting as early as possible.

``The most important factor is time. Starting saving early will have a much bigger impact on the end result than worrying about what is this year's best investment. If you start putting away $20 a week when you're 25 it will make a monstrous difference to the end result compared to if you don't start till you're 35.''

Philip Kilpatrick, a financial adviser with Spicers QFE at Mount Maunganui, said the general population had not given enough thought to the savings required to fund their desired retirement lifestyle. ``For example, for someone wanting a $50,000 tax-paid annual retirement income, they would need to have saved $817,500* by retirement.''

Mr Kilpatrick said a fundamental starting point was to eradicate debt.

``Start reducing your debt, firstly focusing on higher interest rate loans or credit, such as credit cards and higher purchase and then moving on to personal loans such as your residential mortgage. Develop a game plan to get out of debt quicker and create more opportunities. Understand the difference between needs and wants.

``One of the first questions people ask is how much is enough to live a comfortable lifestyle and to be financially independent, either before or at retirement age, but this figure will vary from one person to the next depending on circumstances such as whether you own your own home to what your cost of living is.

``In any case, put yourself in the picture of how financial decisions, or lack of, can affect the way you live your life. For example, learn about the various types of investments available and how they might help you to achieve your financial goals. One of the easiest ways to help create long-term gain is to start saving early.''

The regular savings habit advice was echoed by Diane Bruin, service co-ordinator at Tauranga's Budget Advisory Service. ``Start as early possible. The sooner you do it the more you will accumulate over time. Even five dollars a week is great to start with, it's getting into that savings habit.

She said even those in debt can use the habits formed during the repayment process.

``If people are paying off debts, the process of managing those debts will mean they have been making regular payments. Once those debts are paid off the habit is there of putting that extra money aside. You can continue that by paying into a KiwiSaver or other options.''

KiwiSaver has grown rapidly since its introduction in 2007. In the past year about 17,500 New Zealanders have joined each month. This takes total membership to more than two million.

The benefits of KiwiSaver were lauded by Tauranga business owners Paulette and Robert Barnes.

``I would advise any young person to get a KiwiSaver account,'' said Mrs Barnes. ``It's a great way of getting into the saving habit and I advised my son to take it up as soon as it came out. You don't have to put in four per cent, you can do two per cent for a start and your employer is putting in two per cent.''

The Barnes run a commercial air conditioning refrigeration business, Bay Refrigeration and Electrical (Tauranga) Ltd.

Over the last two years they have also been developing a second business, utilising a portable drier for products such as nuts, called Drying Solutions Ltd.

They said because of the nature of owning a business their retirement contributions had fluctuated over the years. The couple, who are Craigs Investment Partner clients, recommended the use of a financial adviser.

``The reason we've stuck with the professionals for our investing is that when you run your own business your time is taken up doing that,'' said Mr Barnes. `

`You have good years and bad years and in the good years you can flick a bit towards an investment adviser that you trust.

``When you have a good investment adviser, as we have, it takes a lot of the worry out of it. They see the bad times coming far better than you can do. They have the experience and the knowledge and will move the funds into safer investments, spread your risk and manage the amount of risk you want to take.

``In your early years you like to think you're an expert at everything but you're not and we did lose money in the 1987 crash. We weren't alone in that, of course.''

*Assuming 20 years of retirement income at a two per cent ``real'' per annum return after tax and two per cent inflation not taking into account any New Zealand Superannuation income.