Diana Clement: The cost of warped financial expectations

A financially secure retirement takes careful planning. Photo / Thinkstock

Someone, somewhere near to you will be living in la la land about their finances.

Financial planner Marie Quinn, who runs Marie Quinn financial services, says up to four in 10 of new clients who walk through her door want her to wave a magic wand and make them into millionaires. It just isn't going to happen for the vast majority.

Their lifestyle choices, often mistaken for societal "norms", will be sending them in the opposite direction - towards the breadline in old age. Some of those warped expectations include:

The 'I want a cruise' generation

Plenty of Baby Boomers and Generation X still don't have any retirement savings. Yet they believe that they're going to live well and travel in retirement. Not on New Zealand superannuation they're not. The annual income in the hand from that is about $13,000 to $17,000 per person ($14,529 to $19,425 before tax).

The reality is that many are going to hit the age of 65 and find that they have to continue working to fund the lifestyle they aspire to. That's fine if you want to work and have the physical and mental capacity to do so. If you don't, it's a problem.

According to Age Concern, 34 per cent of our older people are financially strapped.

Of those living on up to $20,000 net a year - effectively government superannuation and a little savings - 61 per cent surveyed by the Population Studies Centre, University of Waikato, and the Family Centre Social Policy Research Unit, said they either didn't have enough money or had just enough money. Having said that, "satisfaction" wasn't directly related to income in all cases. The highest group of satisfied people in retirement was in the $40,000 to $60,000 per annum income group. Satisfaction actually starts to drop in people earning over $60,000 in retirement.

The bulletproof people

Just because you've once had a good salary doesn't mean you'll always have it - especially past the age of 65. Quinn had a couple come to her to ask her how to save for a house deposit. Husband and wife were earning more than $200,000 a year each, but couldn't save. "They had no idea how they had squandered all of their money," she says. They were the complete antithesis of many of her clients, who earn regular incomes, but still feel rich.

The get-rich-quick suckers

There are two groups of people that fall into this group. Those that see others getting rich and believe there is an easy way, and those who somehow believe they're going to retire with $1 million-plus under their belts, despite having saved nothing up to age 40 or 50. Both groups are dreamers. The "I can do it too" group is at greater risk of losing everything, right down to their houses and cars. These are the people who fall for Ponzi schemes or think that getting rich through property investment is easy. They don't realise that you have to do maintenance, deal with non-paying tenants, go to the Tenancy Tribunal and much more. They believe the fast-talking salesmen that want to sell them a get-rich-quick plan. The idea that you don't actually have to do much to make money is distorted. The group that haven't done it by the time they're 50 aren't going to change their spots now.

'I'm going to win the lottery' dreamers

It's okay to buy a lottery ticket every now and then for a bit of fun. If, however, you believe that it's your way out of your current financial mire, or lack of retirement savings, then the chances are you'll be eating baked beans, not caviar, in your twilight years. Thinking you're going to get rich on the lottery, gambling or get-rich-quick schemes, blots out the need to save and take personal responsibility.

The 'it's normal to have credit card debt' crowd

It's downright warped to believe that having credit card debt is the norm. Having credit card debt and getting ahead financially are mutually exclusive. If you're using a credit card for more than emergency spending (or regular spending providing you're clearing the entire bill every month) then there's something wrong. I was very pleased when having dinner with a 20-something relative and her boyfriend recently when the conversation turned to credit card debt and I discovered that both of them thought it was, in their words, for "losers". Despite my preconceptions about Gen X and Gen Y seeing debt as the norm, there are clearly some that don't. Perhaps living within your means and having money in the bank isn't a dying art.

The 'keeping up with the Joneses brigade'

These are the people who mistake the trappings of wealth for wealth itself and let expectations cloud their financial picture.

It's their perceptions of family expectations, their peers' expectations, and/or society's expectations that leave them with warped ideas about their finances.

The family one can be difficult. Many children are brought up with an entitlement to XY or Z. Unless they marry money, they'll be expected to work and earn to meet those entitlements, which is where a mis-match can cause problems. Or they've had the same upbringing as a richer sibling and are envious.

The peer expectations often lead people to pay for things in social situations that they can't afford and it's easy to be led by society's expectations to believe more spending will make you happier.

The "keeping up brigade" are the people who believe that he with the most toys or status symbols is the wealthiest. They think by buying nice cosmetics, taking overseas trips and having a good car make them rich. Yet these trappings of wealth make people poorer, not richer.

The relentless march of consumerism makes the lack of realistic expectations worse. This group thinks that if the neighbours, or the kids' friends are taking annual trips to Fiji or the Gold Coast, why can't they? Will they really be better off once they've bought a shiny car befitting of their status, a 3-D TV, or stretched the budget to pay for a private school?

It's not all black and white - there are lots of ifs and buts and subtleties to the warped financial expectations argument. It's neither easy nor helpful to judge others according to your own rules.

A large gross income doesn't always equal large disposable income - because there may be real, not perceived, family financial obligations such as older children being supported through university, or large business debts.

The big problem is the little voices in people's heads that tell them: "I deserve it", "I've worked hard", "It'll all work out in the end" and so on. All these bad choices come with costs and they're often the preserve of people with no reality checks or self-discipline.

There are those who make sacrifices early in life to save for retirement and those who make the sacrifices in retirement. Nonetheless, saving and having a good life aren't mutually exclusive. Those people who save for their future can still enjoy life.

Conversely, those living in poverty in their twilight years, are often living that way as a consequence of their choices earlier in life.