'Be brave' with money, Kiwis told

The new norm of low interest rates is creating day-to-day challenges for Kiwi retirees and putting the squeeze on their retirement incomes.

Ralph Stewart, managing director of Retirement Income Group (Lifetime), says despite term deposits remaining the most popular form of investment for seniors, he believes the time has come for them to start thinking differently about retirement savings.

"Retirees need to reassess their income streams and I would question whether they should stay invested in term deposits," he says. "Once upon a time these provided rock-solid earnings but since the 2008 global financial crisis bank interest rates have plummeted and, with them, bank deposit returns.

"Ten years on they're still down and yet most Kiwi retirees remain invested in this way."

And his views are echoed by Alec Waugh, chairman of the KiwiSaver Annuity Superannuation Protection Association of New Zealand (KASPANZ) who says it time for seniors to "be brave" when it comes to investing.

"It's that Chariots of Fire mentality," he says. "For retirees with a little more (capital) the lower OCR (official cash rate) provides an opportunity to find out what the alternatives are, be brave and make a decision."

Their comments come as figures show that although New Zealanders had almost $170 billion invested in term deposits to the end of May this year - up from $157 billion for the previous 12 months - average returns are only about 3 per cent for balances above $10,000.

Lifetime are retirement income and annuity specialists who manage over $200 million worth of assets and, Stewart says, offer guaranteed income solutions and a fixed income for life for retirees.

The company is New Zealand owned and was established in 2013. Run by some of the most experienced professionals in the industry including former Finance Minister Sir Michael Cullen and former retirement commissioner Dame Diana Crossnan, it is licensed as an insurance company by the Reserve Bank of New Zealand and regulated as a fund manager by the Financial Markets Authority.

Stewart says the low interest rate environment is not going to improve anytime soon: "With no employment income and only New Zealand Super and savings to live on, the new norm of low rates creates real day-to-day living challenges for our retired community."

Waugh says while most retirees don't have a lot of savings anyway and will probably continue in term deposits, he believes decision making is also a reason why many still favour investing this way.

"We all tend to drift along and avoid making decisions," he says. "We think of alternatives but end up sticking with the tried and true. I even find this myself and I'm pretty well versed on the theory; now is the time to do something different.

Both Waugh and Stewart also believe cashed-up seniors should start spending more.

"Kiwis are great savers but struggle to actually spend," Stewart says. "Now, in retirement, it is time to start spending their capital, not putting it away for the next generation. And yes, the next generation will have no problem spending it."

Waugh says while it is laudable senior New Zealanders are doing a lot of grandparenting and giving their children money for first homes, "if you're asking can or should I spend something on myself, the answer is yes.

"This is the time to release some of your savings. Be a bit selfish and spend a bit more on you."

Lifetime Retirement Income offers a practical, secure way of converting savings into an income stream for life. Benefits include:

• Guaranteed fixed income (while retaining access to the account balance at any time) and freedom to withdraw savings, in part or full, at any time.
• Payment of any balance to your estate when you pass away.
• Payment of income after fees and tax (Lifetime pays tax on your behalf). Tax is paid only on investment returns not on any capital drawdown.
• Guaranteed and insured income even through downturns in the market. For example, if you are receiving $300 a fortnight, you will get $300 a fortnight for the rest of your life, a payment which continues even if your capital runs out.

For more information on Lifetime's services and fees go to: www.lifetimeincome.co.nz