… and why good financial literacy and capability is key.
By mid-century one in four New Zealanders will be over 65, largely because we are living longer and having fewer children.
With New Zealand Superannuation (NZ Super) kicking in at 65 and considered to provide a living just above the poverty line, it’s a sobering statistic from the Commission for Financial Capability (CFFC). Tasked with growing New Zealand’s’ financial capability, to help everyone get ahead financially, the Commission encourages people to shape their own futures by saving and investing now.
Understanding financial capability is fundamental to having more people planning and saving their way to a better retirement, says CFFC’s David Boyle GM Investor Education
People should reach their 60s with choices, he says. David shares his insights to the challenges facing retirees today and other ways we can plan for a prosperous future.
Mercer Magazine (MM): What are the challenges facing retirees today?
David Boyle (DB): Most people underestimate how long they are going to live for and, while some realise that they will live longer than say their grandparents, quantifying and subsequently preparing for it is another story. The conversation needs to happen about how much you need to fund this longer, healthier life that you’ll be living. Younger people don’t want to think about it and those closer to retirement are relying on NZ Super, which we are lucky to have, but it probably won’t be enough for most to enjoy the time they have after stopping paid work.
MM: Define financial capability in simple terms.
DB: Financial literacy is learning and understanding financial concepts. Financial capability is putting this knowledge into practice. Literacy and capability go hand-in-hand, but while you can be financially literate you may not be financially capable. Capability is all about the right behaviours that achieve long-term results.
MM: At a recent ageing workforce forum, you highlighted that ‘one in five people of retirement age are still working and that number is set to climb to one in three over the next 15 years’. What are the reasons people keep working, as well as the implications for them, employers and their countries (not just NZ)?
DB: There are those who have to. This could be for a number of reasons, but in an online survey we’re running about half of the participants are saying it’s because of money: they need additional income to support themselves. Some are still paying off mortgages and, particularly in Auckland, this may get worse as house prices are rising and people are buying their homes later in life. Many are also having children later in life, we tend to do everything later these days, retirement is one of those things.
And, there are those who want to. If you are still active, why wouldn’t you? When we are working we have a sense of purpose, we are contributors to our employers, our families and ourselves. It is a great feeling. Most of us also enjoying working because we interact with others; the social aspect is important.
MM: Is a national conversation required about older people in our workforce?
DB: Absolutely, and in NZ we have seen the beginnings, but it needs to involve so many more government representatives, employers, industries, individuals and various agencies.
MM: How do you frame that conversation?
DB: It needs to happen across many groups and organisations, but eventually it needs to be a two-way conversation between the employer and the employee.
Employees need to be able to have a conversation in a safe environment where they can talk about their concerns, options, choices – wants and needs, without fear that it will prejudice their position.
Employers need to be able to have a meaningful conversation with employees as early as possible. The difficulty is how do you approach someone early without scaring them off or where there are no options currently, particularly in labour intensive jobs? Early conversations can help with retraining and better planning.
MM: What drives you to challenge people to think about retirement and finances?
DB: I am an optimistic and a passionate person when it comes to getting better outcomes for all Kiwis. I want to ensure everyone has access to the necessary tools. I also love seeing the difference simple conversations make in people’s lives and it might take a while, but every person we reach is a person who we can help.
MM: What would you tell your 18-year-old self if you could travel back in time?
DB: To have a financial plan, I’d actually take it a step further and have a life plan. Also I’d spend more on good debt and pay off bad debt faster – a concept that escapes many young people today.
MM: You previously talked about a ‘retirement pack’ and what you‘d have in it, what would the top five things be in that pack?
DB: I also call it a preparedness kit.
- Choice: I’d like to have choices when I retire and to do that you have to have more than NZ Super.
- Flexibility, particularly when it comes to working – flexible hours, flexible workplace.
- Options when it comes to income. This relates to choices, but I don’t want to worry about money, so think how you are going to fund your post working life, for example is it through KiwiSaver, property, shares or something else?
- Insurance make sure you have the right cover relative to your personal circumstances. This includes health, life, and general
- Purpose: Have additional interests – be involved in the community, spend time with family, do things that I love and still able to enjoy and this may vary. Understanding what you want to do is step one, looking into what is around you is step 2. Remember your ability to travel or the state of your health may impact your interests.
- Passion: For me, I’d have music and have the ability to travel to concerts not just in NZ but globally. And to play music and to listen to music.
MM: What are the main ‘things’ all people, no matter where they live, should be in control of to achieve financial capability?
DB: There are three things:
- Contributing to save: there are many financial concepts and also behaviours you will find harder to understand fully until you actually do them or see them in action, for example the power of time, compounding interest, the percentage you save, and budgeting are genuinely going to improve your overall financial wellbeing but it does take some time and patience to see the benefits. There are also multiple options when it comes to contributing, so understanding contributions - how much you are saving on a regular basis - is important, but having a goal or purpose for those savings is so much more powerful and makes it more likely the goal will be achieved.
- Choice of fund and investment teaches us about how comfortable we are with risk, makes us a bit more self-aware and aware of our own circumstances. Access to good quality investments is important, and knowing how they will help with your overall financial goals.
- Understanding how much income you need post-retirement, how long your savings are going to last, this leads to conversations about lifestyle.
Most of all you have to enjoy the journey not the destination which is something I am still learning myself.
Stages of retirement
The Commission for Financial Capability has identified three stages in retirement. In the early stage, lifestyle drives spending, in the middle stage spending slows as you start to slow down. In the late stage, spending may go up because of increased costs relating to health and well-being. The challenge of retirement planning is to preserve enough of your resources to have an income to support you in the late stage of retirement.
The ‘Discovery’ stage: 65-74
This first or early stage of retirement will, for many, be the 'doing' years. The time to have a go at all the things you've said you'd get around to 'some day'.
The ‘Endeavour’ stage: 75-84
The middle years of retirement may be more about consolidation, a time to choose fun things, develop old skills, explore fresh talents and grow new friendships.
The ‘Reflection’ stage: 85-plus
As this third stage is a time when health and finances may limit choice, it's a time to accept help graciously, to make the most of all those memories and to keep up with old friends because you hold each other's history.