People need to keep investing their retirement savings after they retire rather than parking their money in the bank to maximise their nest egg, according to a visiting retirement savings expert.
Graham Harman, senior investment strategist for Australasia at Russell Investments, said adequacy was the biggest challenge for retirement savings because of increasing longevity, low investment yields and the global financial crisis.
Harman, who was in New Zealand last week to speak to clients of the firm, said there were a number of ways to make sure people had enough money to live off in retirement while working.
"You can save more - but that doesn't help people who are close to retirement unless they have a time machine [or] work longer - and many people are doing that and spend less."
But Harman said changes needed to be made to post-retirement investing and how that money was paid out.
Harman said research showed that for every dollar spent after retirement 10c came from a person's contributions, 30c came from the investment earnings while the person was working and a further 60c came from the investment earnings made while in retirement.
"You can't afford to stop investing in retirement or to leave it in cash."
Harman said it was also time for the industry to come up with ways to pay investors a pension-like income while still offering the potential to withdraw the money in a lump sum.
In New Zealand once people become eligible to withdraw their money from KiwiSaver they can do what they like with it. There is nothing to stop retirees from blowing it all on a new car or holiday.
Some KiwiSaver schemes offer the ability to keep the money invested and have it paid out regularly but take-up has been low because most still have small balances. Harman said until now balances haven't been big enough to worry about what happens post-retirement. "When it gets to $100,000 or $200,000 it becomes more meaningful."
Harman said there were concerns in Australia because people were retiring with a big lump sum of savings but were using it to pay off their mortgage or retire other debt and were then just living off the government pension.
There was a lot of debate about people being forced to buy an annuity from their savings which would pay out a regular amount of money, he said.
Harman said the move was politically unpopular because people did not want to lock their money away.
"People need flexibility - they might need to get their money out for a new roof or to pay big health bills."
Harman said the money should be managed in a conservative way to allay people's fear of losing money which increased five-fold once they retired.