How long you live is a critical question for financial planning

How long will I live?

This is the single most important piece of information for most financial planning questions. Almost everything hinges on two risks: that you might die ‘too soon’ or ‘too late’. Let us ignore the diversionary idea that there is a ‘right time’ to die and focus on the financial issues.

First, I’m writing about this because I just read an interesting piece about retirees needing to go flatting again as they are unable to live on what super provides. Aged Kiwis ‘only just surviving’ as they go ‘flatting’ again to make ends meet | Stuff The article calls for super to be raised when people hit 80. They even quote that “It hasn’t adjusted for the fact that people live until 100”. This sounds awful – much like how tax brackets are not indexed and due to recent high inflation ...hundreds of thousands more people have been pushed up to higher tax brackets despite not earning in real terms any more

You’ll notice the article doesn’t mention that super was only supposed to support people for a few years between retirement and death – not the decades people can expect now. In fact, this is almost exactly the reverse of unfair to retirees. In this case, longer lives means recipients of New Zealand Superannuation are already receiving much more than was originally intended, because they are living so much longer. Once again, I stress I am delighted we’re all living longer, and long may that trend continue. But what’s going on is that all the mortality risk – in this case the need for loads of extra money because retirees are living longer - is borne by the government. Or, younger taxpayers: aka, your kids and mine, of which there are not enough to support the ever-larger numbers of people who will be claiming New Zealand super.

Let me give you another example. When Germany introduced an old age pension the age of qualification was initially set at 70. This was in 1889, when life expectancy was only about 45-50 years for women, and a bit shorter for men. In fact, only about 1% to 1.5% of the population were expected to make it. This was so nakedly mean that the age of qualification was subsequently moved to 65.

Fast forward to our current situation, where we spend about $19.5bn a year on superannuation - this will jump to about $39bn over the next fifteen years. To match the originally stingy scheme offered by Germany in the 1880s we could move our retirement age up a lot – to something around age 100 would do it. But, of course, that’s ludicrous. We want to care for our older folk, especially those that cannot work. I checked current political parties’ stances on this issue and there’s almost no difference between them. Labour says they want to keep the age of qualification at 65, while coalition parties National, Act and New Zealand First want to move it to age 67. In the grand scheme of things this makes almost no difference. Perhaps it is time to talk about this age change again, as roughly half of all the people aged 65 to 69 inclusive are still in the workforce.

There are some other challenges with our cherished New Zealand Superannuation. The gender pay gap finds exaggerated expression in retirement – because of all those years getting paid more, men tend to retire with healthier superannuation savings in the first place, and yet will sicken and die younger. If they are in a relationship that means the demands of their care drain the couple’s joint savings, leaving less for the women to live on as per the article “…all the couple’s money is spent on care of a male partner, who statistically needs it first. When he dies, women are left penniless and, what we are now seeing more, homeless.” Although I feel immensely for the surviving and impoverished partner, I also feel sympathy for the man who will live a good five to seven years less on average. The more political among you may pause to consider the balance between your desire for, say, an equitable financial outcome between this hypothetical man and woman, and the alternative of considering ways to address your desire for more equitable life expectancy outcomes.

Will this result in more homelessness for women? We do have a lot more homeless people overall. This chart is colour coded blue-ish for National led governments, and red-ish for Labour led ones, so we can be clear about the consistent contribution to this policy outcome from both our major parties.

I couldn’t specifically reference homeless people broken down by age. Although my searches led me to find that men are far more likely to be homeless than women, our generally appalling inability to house people, which is a product of a seemingly shared multi-party neglect for about the last forty years suggest that the threat of homelessness for older people is real. So perhaps we can look forward to more equity in this regard in the future, with women being increasingly thrown out of rental accommodation in their advancing years due to the inadequacies of New Zealand Super.

What might a more logical superannuation policy might look like?

·       Increasing contributions to KiwiSaver would help each person build up a better personal cushion that they can employ based on their own specific circumstances

·       Those that have worked in hard manual jobs and have serious health challenges should be allowed to access their retirement savings earlier and with good advice could choose to consume their retirement fund faster – an option they are not given with state pensions, although, that too could be considered

·       Pushing up the age of eligibility for New Zealand Super would make the scheme more sustainable and could fund a more generous treatment at a more advanced age.

·       We could offer those that defer their pension a higher weekly amount when they do start to claim it.

·       We could do a better job of genuine safety-net benefits and increase the supply of housing to try and avoid a future where there are more elderly homeless people.

·       As an additional tool, when inflation kicks off, we could make KiwiSaver mandatory and automatically increase everybody’s KiwiSaver contributions - leaving people better off financially when older and seeing a more immediate pullback in spending to bring down inflation quicker

No one is really making the case for any of the suggestions above currently, or perhaps more than a dozen others that I have heard talked about by people interested in retirement policy. When financial services companies do, we are accused of feathering our own nests. We must admit that conflict of interest, but we also need to keep telling this story. Retirement policy is too important to be left to just the politicians.