Diana Clement: Save now for a better retirement

OPINION:

Getting old is expensive. Youngsters and those of us who aren’t quite there yet can throw stones at Boomers and all their money, but some of those supposedly rich people will hit retirement with nothing; or not enough to pay for more than the absolute basics.

Don’t ignore this. We’re all going to be old sooner than we think. Whether you’re 20 or even 40 to 50 years old, there is still time to put some savings in place.

Clocking the costs of the future might help you sort your savings better. You don’t want to be that person who is unable to walk for 18 months as you wait your turn for a hip replacement on the government.

New Zealand Super is $652 a week for a couple or $424 for a single. Unless you have savings that’s it unless you qualify for an accommodation supplement.

Many of your fixed costs such as rent, mortgage, rates and insurance will stay the same, despite your reduced income. Your power and water bills might well go up.

Sure, you’ll no longer have transport costs and a work wardrobe and after-work socialising to pay for. Dr Pushpa Wood, director of the Westpac Massey Financial Education and Research (Fin-Ed) Centre, points out as you age your health costs will most likely go up over time. So too, if you have it, will the cost of private medical insurance.

“Your entertainment costs will go up because now you have more time,” says Wood. “If you don’t spend money, you run the risk of being isolated because you’re not going to see other people.”

As you age you might need more equipment such as spectacles, hearing aids, wheelchairs and stair lifts, which can be remarkably expensive.

The Commission for Financial Capability (CFFC) splits retirement into three stages and your spending and financial needs will change depending on whether you’re in the Discovery stage 65 to 74, the Endeavour stage 75 to 84, or Reflection stage 85 plus.

In that Discovery stage, if you do have some savings, chances are you’d have been planning to use them to travel, especially if family live in other regions or countries. You’ll spend more on hobbies and dining out, and you might also be helping out your kids.

It can be very easy to consume all your savings in that first 10 years, says retirement commissioner Jane Wrightson, even if, as the CFFC points out, you may be still be working.

In the Endeavour stage, you’re still likely to have hobbies and travel, but you’ll do it at a slower pace. In the Reflections stage, your costs will most likely drop, except for healthcare that is. In all three stages, not having spare cash will limit you.

There is a point in ageing people’s lives where the upkeep on a home gets too much or your mobility reduces, and you might start to get lonely. If you have money you can move to a retirement village, which I’ve heard described as a cruise ship on land.

You’ll need to buy a right to occupy retirement village unit. In Auckland, most units cost in the $500,000 to $700,000 bracket, but you can pay over $1.5 million. In addition to the purchase price, you’ll pay a weekly service fee. When you die or leave you get back your original capital less 20 to 30 per cent and no capital gain.

Villages often have serviced apartments and care facilities if you can no longer live independently. You may have to buy a new unit and, in some cases, will lose another 20 to 30 per cent on that second unit when you die or leave.

Rest homes and private hospitals come from local district health boards. If your investments add up to more than $129,432, you’ll have to pay around $1100 a week ($57,200 per year) for your care. The government will take over once your assets fall below that $129,432 figure.

The moral of this story is to look for ways to save now for a better retirement.

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