KEY POINTS:
For thousands of New Zealanders nearing retirement the glow has gone from what should be their golden years.
Their savings have been hit by the unprecedented convergence of a slowing property market and domestic recession, falling sharemarkets, the tsunami that was the peak of the credit crunch, and, finally, tumbling interest rates as world Governments scramble to shore up their economies.
South Auckland couple Bruce, 62, and Yvonne, 58,* are watching their retirement drift ever further away as the value of their private superannuation fund dwindles.
They were looking forward to going sailing when Bruce quit work in three years.
But despite saving into Bruce's work super scheme for 30 years - which his employer also contributed to - Yvonne says its value is currently less than the total contributions over that time.
"We worked out that if we'd just put our contributions in the bank at 5 per cent we'd have a lot more in that fund than we've got now," she says.
The couple still have a mortgage and refixed it for two years six months ago. Mortgage rates have since come down considerably.
Yvonne doubts they'll be mortgage free by Bruce's 65th birthday. They have some shares, but were basically relying on the superannuation fund to keep them in their retirement.
Now, Yvonne says, her husband will continue working as long as he can. "It certainly would have been nice to be able to retire at 65, and enjoy a bit of free time to do the things that we want to do."
It's a familiar story to financial planners trying to advise their clients in tumultuous economic times.
Jeff Matthews at Spicers Wealth Management tells of a newly retired client whose portfolio has plummeted in value by $60,000 this year - from $494,000 on December 1, 2007, to $434,000 today.
The man is still working part time, deferring his need to draw on his capital for a couple of years. But it would be a problem otherwise, Matthews says.
The financial planner says possible actions to address the situation are limited, because moving out of growth assets, such as shares and property which have been hard hit, just turns paper losses into real ones.
"I can tinker around the edges but I really can't change a lot."
He could, for example, move another 5 per cent of the portfolio into conservative investments such as fixed interest or cash. "But that would be about the extent I'd be prepared to move because of the losses. You're starting to destroy too much value."
Matthews strongly advocates age-appropriate retirement savings portfolios - that is, as a person gets closer to retirement more of their investments should be moved into safer income assets such as cash or bonds, as opposed to growth assets. At age 60-65 the split should be about 55 per cent income to 45 per cent growth.
Then as the person moves through the golden years the split should change - at 66-70, for example, it should shift to 60 per cent income versus 40 per cent growth. From 81 onwards the split should be a conservative 80 per cent income against 20 per cent growth.
However he concedes in the current environment no one has been immune. "Even if I've got people correctly positioned, they've still taken a pasting in the short term."
He's had clients reasonably well into their retirement reduce or stop their drawings to try to preserve their capital "because they're just a bit worried that they'll chew through the money too quickly".
It may sound cliched, but the thing to do is sit tight and not panic, the advisers say.
Both Matthews and Kapiti Coast financial planner Liz Koh have seen the people who have chased from one asset class to another, with disastrous results.
A decade ago there were double-digit returns to be had from shares, Koh says.
When that hit a low point in 2003 people went into property investing or finance companies. As that turned to custard they ran off to the banks. But whereas a year ago they were getting returns of 8 per cent, now they're staring down the barrel of around 4 per cent by mid-next year. "If they'd just stuck to a simple diversified strategy, they would have been fine instead of lurching from one crisis to another," Koh says.
Like her colleague, she says the key is always to have a diversified portfolio.
Retired people should still be thinking medium to long term, because they're going to be investing for another 20 years-plus.
"They think their investing days stop the day they turn 65, which is not the way to look at it."
They should have even 20 per cent of their portfolio in growth assets - and this can be purchased gradually to get the best value - because shares and property are arguably now near their lows and this is where the upswing is most likely to occur.
"Not that it's going to happen overnight, it might take a year or so to come through, but when it does happen you'll get good returns there - certainly a lot better than 4 per cent in the bank.
"You don't need all your capital at once, you can have some invested for now and put some away to give you a bit more of a boost later."
The other mindset older people need to get over is preserving their capital, Koh says.
"They don't actually have to, they should be planning on running their capital down over their lifetime and not being too worried about what they leave for the kids.
"It's a matter of not running it down too quickly."
The change from a working income to relying on superannuation can be a shock. Koh advises clients in their last year of fulltime employment to live on as close to New Zealand Superannuation as possible and save the rest, "just to get used to it".
A surprising number of Kiwis do live on national super.
Ian Anderson, the chairman of the superannuation portfolio for the lobby group Grey Power, says that the latest statistics show there are 167,000 New Zealanders whose only income is the pension.
A further 89,000 have national super, plus up to $38 a week from another source, such as interest from investments.
These people are being hit hardest by slumping interest rates, he says.
"It would be probably not wrong to say it's a critical problem for current superannuitants, and it's something people coming up for retirement should be very much aware of."
Another 225,000 Kiwis live on what is termed an "adequate" retirement income.
"I would imagine a lot of those people are now not having an adequate income," Anderson says.
The good news, Retirement Commissioner Diana Crossan says, is retirement isn't what it used to be.
Because New Zealand has no compulsory retirement age, turning 65 is only about collecting national super.
New Zealand has the second-highest participation in the workforce by the over-50s in the OECD.
This was happening long before the financial crisis, Crossan says. It is also useful for employers who, despite a slowing labour market, still struggle to find skilled workers.
The other part of the story is NZ Superannuation, she says.
It was brought in to alleviate poverty, and it achieved that.
"We are proud of it for that reason. I wouldn't want to live off it alone, and I know it's really hard. But it's there. [It] is very good at stopping a lot of people going into real hardship."
*Not their real names
