By Amanda Morrall
1) Stop fretting
Yesterday I spent the day thinking and talking about something most of us would rather do anything to avoid, even going to the dentist I expect.
As part of a panel of guest speakers at the Commission for Financial Literacy and Retirement Income's latest review on retirement income policy in Wellington, I had my head fully emerged in retirement savings land.
I can't report on everything that was said and nor do I have the space and time to. Suffice to say, there was a lot said. Some of it scary, some of it interesting, some of it depressing, all of it relevant to everyone old and young. We're all in this quagmire together.
One of the major issues discussed is around the sustainability of the New Zealand Superannuation. It doesn't look good folks. One obvious way that's been identified to make it last, without crucifying younger generations with higher taxes, is to raise the age of eligibility to qualify for it. This is something that other OECD countries, faced with similar demographic time bombs, are doing.
More people getting older and living longer than every before means the cost of our "national treasure" will double if we don't take concrete steps to do something about this elephant in the room. Remember that on top of this fiscal nightmare, we (the taxpayers) face monumental pressures to our health care system caused by all this ageing and potentially ailing oldsters.
The Commission for Financial Literacy, in its last review of retirement income policy, proposed that the age of eligibility for retirement (for the purposes of quality for the NZS) be slowly raised from 65 to 67 starting in 2020. Although this proposal has tended to spook the grey vote what many fail to grasp is that the slow, gradual phased in approach as outlined by the Commission means that it'll take until 2033 before the age of eligibility switches over to 67. So it's not an overnight event. I repeat. This is not an overnight change.
Rather than wait for Government to "get it right," which they might do so eventually I reckon individuals need to start taking action for themselves, today. This means boosting personal savings to prepare for the possibility of the NZS being lower when it comes time to retire or the possibility a means tested affair.
While NZS, in its current form, is what keeps poverty rates among seniors low in New Zealand the entitlement rests on one MAJOR assumption. That you are living rent or mortgage free. If you have to manage on $349 a week (that's the individual entitlement) whilst continuing to pay rent, you'll be up the creek or possibly living with your offspring or living uni style in your 70s with flatmates galore.
The Financial Services Council, which conducted some research in this area, found that only 9% of New Zealanders are confident they'll survive on NZS alone. Savers are being encouraged to reprioritisation on a three-tier basis: 1) NZS 2) Workplace Savings i.e. KiwiSaver and 3) other private savings.
Don't panic. Just review and start planning. Here, via Yahoo Finance, are 9 ways to worry less. You can substitute KiwiSaver for the 401K. The other tips contained herein are universal.
2) Credit card fees
On my way to and from the Wellington airport I had a fascinating talk with my taxi driver who hails originally from Bangladesh. Like many taxi drivers from foreign countries, he was highly educated chap. He had an MBA from his home country.
During our candid talk I discovered that he earned more than twice the median income in New Zealand (which is $42K) driving a taxi. I got the low down on weekly licensing fees and also credit card surcharges. I shouldn't be surprised but was still horrified to hear that in addition to the $2.30 a pop surcharge for credit card use, the credit card companies were also helping themselves to an additional 5% of the fare.
It was yet another reminder why it pays to pay close attention to these pesky fees and surcharges and to shop around for the most competitive rate. Check out our credit card borrowing section here.
Also see Bernard Hickey's recent interview on TVOne where he discusses surcharges on credit cards.
3) Investment Management Fees
Under the new "periodic reporting requirements" rules, KiwiSaver fund managers will be forced to report fees, performance, asset allocation, taxes and such in a standarised way. See my colleague Craig Simpson's article on this here for more details.
This is a long overdue measure but better late than never. As to whether it will help KiwiSavers truly understand how much they are paying in fees, I'm not sure.
Overseas in the U.K., even industry heads are acknowledging the investment sector has done a poor job of letting its clients know how much they are being squeezed in fees. The chief executive of the Investment Management Association in the U.K. has proposed that fund managers spell out in dollar and cents (pounds and pence) just how much investors are paying as a proportion of units they hold in their portfolio.
The Telegraph's Emma Wall reports on the recommendation here and uses an example, provided by the Association head, of how such a reporting method would look. I've cut and paste it for you below so you can get a sense of it.
You held 3,456 units on January 1, 2012 with a value of £4,320. On December 31, 2012, you held 5,140 units with a value of £6,939.
“For a unit held throughout the whole year, the price went from £1.25 to £1.35, a rise of 8pc. The total costs for a unit held throughout the year were approximately 2.5p per unit. The costs were equivalent to a quarter, or 25pc, of the growth in the value of a unit. If you want to know the details of the costs, please click here.”
KiwiSaver funds are also priced in terms of units, so how about we look at adopting a similar practice here? Anyone?
4) Give to get
A fascinating profile here from the New York Times on Wharton School lecturer Adam Grant, one of the university's top rated and most popular professors, who has authored a book called "Give and Take." Grant, reportedly one of the most prolific scholars in his area of psychology, has a theory about success: he believes that the more selfless you are, the more you do for others, and genuine your commitment to acts of service, the better you'll fare. In sum, that the real secret to success is giving. I would tend to agree.
I've lifted a portion of the interview. Please read the entire story. It's marvellous.
“Give and Take” incorporates scores of studies and personal case histories that suggest the benefits of an attitude of extreme giving at work. Many of the examples — the selfless C.E.O.’s, the consultants who mentor ceaselessly — are inspiring and humbling, even if they are a bit intimidating in their natural expansiveness. These generous professionals look at the world the way Grant does: an in-box filled with requests is not a task to be dispensed with perfunctorily (or worse, avoided); it’s an opportunity to help people, and therefore it’s an opportunity to feel good about yourself and your work. “I never get much done when I frame the 300 e-mails as ‘answering e-mails,’ ” Grant told me. “I have to look at it as, How is this task going to benefit the recipient?” Where other people see hassle, he sees bargains, a little work for a lot of gain, including his own.
5) Stay calm and carry on - investing
Rob Carrick, personal finance editor of the Globe and Mail newspaper in Canada, offers some sensible advice for investors about market corrections. In a nutshell, stay calm and carry on. I like his four rules for investors too.
Four Rules For Investors
1) Ignore talk about bond and dividend stock bubbles: You need bonds in your portfolio for stability when stock markets fall, and dividend-paying stocks are a solid foundation for investors.
2) Don’t get cute with bonds: Corporate bonds are fine, but high yield and emerging market bonds should get only a tiny weighting in your portfolio at most; you get enough risk from the stock market without adding more through your bond holdings.
3) Stagger your stock market investments over the rest of the year: You’ll limit your vulnerability to a correction that way, and have some money working for you if stocks keep going up.
4) Think globally: Most investors have plenty of Canadian content and are underweight on U.S. and international stocks.
13 Comments
All developed economies, and many less developed ones, provide some level of support to older citizens rather than expecting them to support themselves, and most of them spend a lot more on it than NZ does.
Similarly, most economies provide education for children rather than expecting their parents to pay for it themselves, and help to people who can't support themselves through work rather than leave them to starve or find charity. It's become something that civilised societies do.
Certainly the argument can be made that everybody ought to be made to save for their own retirement and only people who really can't afford it should get Government support. That is pretty much exactly what was proposed by Winston Peters a few years back and heavily defeated in a referendum, although arguably the referendum was more about whether you liked Winston or not than the merits of his idea. It is also one of the options for addressing the future cost of NZS that was discussed at the event Amanda describes. Like all of the options it has its pros and cons.
One could equally argue social welfare, as we know it, is a recent post WWII experiment that many civilised societies in history chose not to do.
In either event its foundation was always the economic means of an increasing workforce to carry the unaccounted burden. As that erodes so does the means to pay and the experiment, as we know it, will be over.
Who knows how history will judge it.
Well, history might be impressed with the prescience of Lord Macaulay, who wrote in 1857:
A democracy cannot survive as a permanent form of government. It can last only until the voters discover that they can vote themselves largess from the public treasury. From that moment on, the majority will always cast their ballots for the candidates promising most benefits from the public purse with the result that a democracy always collapses from loose fiscal policies, always followed by a dictatorship.
By starting the debate, people like the Retirement Commission and Amanda are trying to help us collectively towards a well-considered and timely response to the increasing inaffordability of carrying increasing numbers of non-contributors. History will be kinder to them than it will be to those who don't choose to engage in that debate.
They might be, but they'd do better if they stood back one, and considered to whole picture.
Those oldies, and the demographic, are there courtesy of fossil fuels. Believe it.
So they have to deal with the sinking deck as well as the sliding d/chairs.
That debate hasn'e even started.
:)
Nope; they are there courtesy of human ingenuity, driven by human greed and self-interest, in finding ways of using fossil fuels and other resources to improve our wellbeing. Fossil fuels just sit there in the ground unless and until humans act to extract and utilise them.
Fossil fuels are finite and will become increasingly hard to obtain. Human greed, self interest, ingenuity and creativity are not, and will not. They will drive a search for alternatives to the use of fossil fuels.
You don't need a policy intervention or debate to do something that people's self interest will make them do anyway. You do need a policy intervention if you want to get people to do something which isn't in their self interest.
What I said was that these days, developed economies/civilised cultures provide financial and other support, through Government, to the least able members of their societies, which in all cases includes the old.
That is an empirical statement of fact, not an opinion. I did not mean it to be taken as an expression of support for the practice. As I set out in a subsequent contribution, it has long been recognised that there are dangers in such an approach - which is why it is important to debate whether, and if so how, we can carry on with it.
You've set out very clearly that you think it's wrong for Government to forcibly take money from productive, responsible citizens and transfer it to irresponsible, foolish, thriftless ones; and that societies that do so (ie pretty much all of them these days) are despicable. That's an entirely legitimate position, one that is shared by many. But it is not indisputable, and it's not shared by everybody - after all, if everybody thought the same as you, no society would do it.
Not everybody who doesn't prepare for their retirement is irresponsible, foolish and thriftless. Some are simply unable to do so, for example through ill health, ill luck in the employment market, family duties etc. Are you saying that Government/society should not provide support to anybody, no matter how unfortunate - or that Government should only provide support to those who truly need it? And if it's the latter - on what basis would you propose that Government - a bunch of politicians and bureaucrats sitting in smart(ish) offices in Wellington - decide who is and who is not deserving?
I repeat - I'm not saying it is good. I'm saying - as a simple statement of fact, not a value judgement - that it is what almost all societies do these days. It is the situation we have in New Zealand (where we actually spend considerably less on pensions than most other countries). People are trying to start a debate as to what to do about it. Just setting out - no matter how convincingly, no matter at what great length - why we're in a bad place, doesn't help to get us into a better place.
You don't like it - set out how to change it. Are you saying stop all support to all old people now? Even those who are already old, have no means of support and have no prospect of finding employment to support themselves? Or just those who do have the means to support themselves?
Not disagreeing with your sentiment - not all of it, anyway - but I have a few concerns about the practicality of your proposals.
How is the Government going to determine whether an old person without resources, is in that position by his own fault? How would they know what opportunities he has had, and whether his situation would now be different if he had made different choices? How would they establish whether he could have saved more of his income? Do you really think that Government is capable of making such distinctions in a way that's cost effective, fair and error free?
You say ROI on Government spending must be positive - but if that were the case (in financial terms), why wouldn't private money be undertaking the investment? This is precisely the kind of case where Government should not be spending money. Or maybe the return is not in financial terms - protecting kiwis from stoat predation, for example - in which case, on what basis are you going to determine what is a "pet project" and what is a legitimate expenditure for a genuine public benefit?
No consultants? Sometimes Government needs to make decisions at short notice requiring specific technical expertise. To be able to do that, either they have to develop expertise in every conceivable subject that might come up, and pay to have that expertise sitting around in house just in case it's needed; or they have decisions made by generalists on the basis of what they've been able to Google. And this is going to be more efficient and effective than hiring in the expertise as and when it's needed on a temporary basis,is it?
Japanese set to drive their export prices down...look for a big drop in the price of Japanese cars, tvs and all other goods....
The Bank of Japan will aim to double the monetary base over two years through the aggressive purchase of long-term bonds, in a dramatic shift aimed at ridding Japan of the deflation that has dogged the country for almost two decades.
http://globaleconomicanalysis.blogspot.com/#lLyoHAr63ff04rJY.99
Idiots...
"The European Central Bank stands "ready to act" on interest rates if the eurozone economy weakens further, president Mario Draghi has said, as analysts predicted that a rate cut could come as early as next month".
http://www.telegraph.co.uk/finance/economics/9972562/European-Central-Bank-poised-for-rate-cut-to-ease-euro-pain.html
Can someone explain to me WHY the credit card companies charge a fee for overseas transactions. I mean as well as stinging you on the exchange rate?
Isn't the whole idea of online shopping and travelling overseas the reason we *have* their poxy card in the first place???
Aside from Paypal, if anyone can suggest ways I can avoid overseas charges or knows of a card issuer who doesn't charge them - let me know...
ta
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