The couple who lived too long

Asked why they needed money, the response from an Auckland couple was heart-breaking: “We didn’t expect to live this long.”

For Beryl and Edgar Charles (not their real names), life in their late 80s had taken a grim turn. After running out of savings, the long-retired business owners were seeking a way out of their predicament – and had applied to borrow cash to tide them over.

Turned down by the brokerage they had approached (because they had not enough income to meet repayments), the couple were left with few options other than talking to their family in the hope of finding a way out of their impasse – a step they were reluctant to take as they had never wanted to be a burden on them.

“We have always been independent and thought we had our retirement well sorted, but we really didn’t expect to live this long,” says Edgar.

Their story is an example of an all too familiar scenario playing out among a growing number of Kiwi retirees: What to do as better health and longer lives result in more people outliving their income.

The problem is likely to deepen in the coming years. The most common age of death has risen over the last 20 years from 78 to 87 while New Zealand Financial Services Council (FSC) research late last year shows retirees were generally short of about $218 a week to live comfortably, even taking into account the state pension and KiwiSaver.

KiwiSaver is rated by most as having done a good job but is designed to accumulate savings, not to help people with drawing down savings in retirement.

Meanwhile a financial wellbeing survey commissioned by ANZ this year revealed about a quarter of New Zealanders have no savings while a BNZ Financial Futures study showed 31 per cent of Kiwis plan to keep working beyond 65 for financial reasons.

Kiwis are not alone. In the US, a survey conducted by the global financial services company Wells Fargo found 48 per cent of Americans admit they will not have enough money to survive in their golden years. Chillingly, the survey revealed 22 per cent said they would rather die than not have enough cash to live comfortably in retirement.

In New Zealand Tom Hartmann, the personal finance editor of the Commission for Financial Capability (CFFC) says increasing lifespans are one of the variables that make retirement planning a challenge.

“Alongside the question of how much we’ll need, not knowing how long we should be planning for can paralyse us and lead us to simply kick it all down the line a bit longer,” he says. “People underestimate how long they are going to live.”

Hartmann says life expectancy may climb even higher in the future: “Biotech breakthroughs may mean not just increased lifespans but increased health spans as well - where we not only live longer but live better.”

Because of this Hartmann says the CFFC is trying to get people planning for retirement earlier in their lives - and encourages a careful investigation of all options.

A relatively new type of product in New Zealand – life income funds – gives New Zealanders the opportunity to have a regular tax-paid income from a lump sum investment, particularly in a world of low interest rates. Combining investment and insurance, the funds provide customers fixed fortnightly or four-weekly income for the rest of their lives.

“Because it is difficult to predict what the market is going to do over time, these products can provide a degree of certainty for people and take away the ‘up and down’ of the market,” he says. “It’s like still getting a pay cheque.”

But Hartmann says there are key questions people need to ask when considering or researching a fund of this nature.

“Firstly, by my calculation, an investment of $100,000 would typically return a payment of about $200 per fortnight. But 25 or 30 years down the road that $200 may not be worth the same, so people need to ask whether the fund adjusts for inflation or not.

“If you die early you will also want to know if the investment can be passed on to your estate and, thirdly, you need to ask what happens in the event of a company failure. Will the payments continue?”

Hartmann says people need to go in “with eyes wide open” and while it may be hard to tell precisely how many years they’ll need to fund, above all they should be planning now so they avoid the predicament that faced Edgar and Beryl Charles.

*Britannia’s Lifetime Income Fund combines investment with insurance to give you a retirement income for life. No matter what happens to interest rates or financial markets, your income is insured to last the rest of your life. For more information: https://britanniafinancial.co.nz/lifetime-income-fund. Disclosure Statements for Britannia’s Authorised Financial Advisers are available on request and free of charge. Phone 0800 663 663. The Product Disclosure Statement for the Britannia Retirement Scheme is available from Britannia Financial Services Limited at www.britanniafinancial.co.nz