Private Property issue #145 - NZ Herald is wrong

I was lounging on my couch on Saturday when I opened up the NZ Herald and saw something interesting.

Mary Holm – one of New Zealand’s most trusted financial writers – talking about us at Opes Partners.

A reader was on my website looking at an article. It was talking about how much you might need for retirement. 

They thought my numbers looked a bit high. Mary agreed (nothing wrong with that).

After all, I really like and respect Mary. But there are a few things she (and others) often miss when it comes to retirement numbers. 

#1 – Everyone sets up their money differently 

If you want to live the Choices lifestyle in retirement (I talked about this in last week's newsletter), I reckon you might need $890k - $1.45 million. 

Massey University’s equivalent report said $717k - $969k. 

Why are my numbers higher?

One reason is how you set up your money:

• Do you want to spend your savings in retirement … or live off the interest/returns so your money is less likely to run out?

If you want to live off the returns … you’ll need more savings.

• The price of things keeps going up. As that happens, do you want to spend more? Or are you happy buying less?

If you want to inflation-proof your retirement, you need more savings. 

• How much do you want to rely on NZ Super? Do you want it to be a big part of your plan? Or do you want to treat it as a bonus?

If you don’t want to rely on NZ Super, you need more savings. 

I love Massey University’s report. But, they take one view: 

• That you spend your money and die with $0. 
• That you have a big dependence on NZ Super.
• Nor do they fully factor in that the cost of things goes up

That’s why I give people a bigger range. Because the amount you need isn’t a single number. It depends on how you want your retirement to look. 

#2 – It depends on when you think you’ll die 

By the time my wife retires, she’s got a 24% chance of living to 100.

And there’s a 50% chance she’ll live to 93.

Knowing her, she’ll live to 110. 

But Massey University’s report assumes you and your partner die at 90. 

Not a bad assumption if you’re currently 65.

But younger generations tend to live longer. 

Again, that’s why I give a wider range than Massey University. 

Because if you’re younger, you don’t want to run out of money in your later years. 

#3 – People put different numbers in their calculations 

The other big difference is that reasonable people will use different numbers in their calculations. 

For instance, how much will a Balanced Fund return you each year? 

Some people say as little as 3.5%. Others will say up to 6% or more. 

That’s why I paid MyFiduciary – an investment consultancy – to tell me what to use. They said 4.43%. 

If you assume your investments get a higher return … you’ll need less money to retire. 

If you think your investments get a lower return … you’ll need more money.

That’s part of the difference between my and Massey’s numbers.

But Mary did make some fair points

I’m not knocking everything Mary wrote. She made some good points. 

As people get older, they tend to spend less. 

Neither my nor Massey University’s numbers take that into account.

That’s primarily because no one’s done much research on that question. 

But she does get some things wrong

But, what I do think Mary gets wrong is saying things like: 

“Opes numbers are higher than FinEd’s, which is hardly surprising given they want to encourage people to invest.”

She’s right that I want to encourage people to invest … but not for some untoward selfish reason, as Mary insinuates. 

It’s because most Kiwis I meet – as a financial adviser – are not on track for the retirement lifestyle they want. 

And, as a financial adviser – I want to put out accurate numbers. That’s why I give a range. 

So, my podcast, book, and newsletter aren’t here to give you one single number for what to aim for in retirement. 

They’re here to give you the options so you can make up your own mind.