How much capital do I need to retire comfortably on ?

[percy]

My parents were frugal and have saved to the extent they had a good modest home with a moderate amount of investments. However one of them has a medical condition and now needs nursing home care. Because of their savings they exceed threshhold levels and they do not get a subsidy.

The comfortable retirement is in jeopardy, as an extra $50,000 pa is needed to cover fees. That would be equivalent to $75,000 before tax income! The costs of living for the independent parent has not reduced by much. There is a bit of regret, that they were not a bit more extravagant. Maybe they could have put in new kitchens and bathrooms and stayed in expensive hotels. Their investment savings will go down quickly with their extra expense. They pay for the nursing home (* all people are subsidised as to the medical component) , whilst some, if not the large majority of the fellow residents, do not. Is that fair? Does it encourage people to save for their retirement?

Life unfortunately is never fair.
My wife's mother is in a nursing home with dementia.She worked as a machinist all her life.No family trust, means her house will have to be sold in the not too distant future, to pay for her care as her investment money is nearly gone.
We are now "comfortable " [well positioned] and the rainy day funds we have on deposit, which matures in May,are going to pay off the daughter's mortgage.The amount of interest, after tax, we have been receiving we can do without.

[Beagle]

Very nicely illustrated Roger: my compliments.

I have spent years pondering the Great Wall of retirement and attended seminars, read books, and saved what I could.

I have also advised families and dealt with the parents estates when they have died.

My conclusion is that saving "enough" to provide a truly independent income is impossible for most people. Including myself. In fact I now regret not taking family holidays to Australia, Europe etc as my friends did.

We can't live life in the future: life is now. As in all things, moderation is the key. Save for retirement but don't let it worry you. Rich relationships with family and friends are the investment which brings rewards over your whole lifetime.

Allow me to return the compliment, I really like the bit highlighted.
Some good posts here. Thanks for so many good contributions and its turned into quite an interesting thread.

I think we can all agree its a very good idea as an absolute minimum to have a debt free home by the time you retire. I also think its a good idea to have at the minimum some other asset that pays a regular income whether that's an investment portfolio, rental property, part of your existing home converted to a flat or some other reliable form of income as its a fairly modest lifestyle just existing on the national Superannuation alone even with a debt free home.

I'd like to take up the debate about Trusts.

Trust law is long established and I would perhaps somewhat boldly suggest most of our politicians have their family home in a family trust.
At present my understanding with rest home and in home care costs is they're looking back 10 years for gifting, used to be 5 AND they look through family trust structures in regard to regular income payments from same, I don't think they did this several years ago.

Now for some pure speculation.

Will that look back period increase or will they look through the family trust structure completely ?

I doubt there's the political will for the latter option but I could well be wrong but there's the distinct possibility that they'll look back further in an effort to stem the rising health care costs in this area.
In my view this underscores the importance of establishing your family trust early and getting the gifting done and dusted, (this process is helped by the recent abolition of gift duty so you can now gift it all in one step provided you're solvent and the Trust is too).

Will we see the re-introduction of some form of national superannuation surtax ?

In Australia I believe if an individual earns more than $72,000 they're ineligible for Super.
I suspect with the baby boomer population tsunami we'll see some sort of similar system here eventually and / or possibly an increase in the eligibility age from 65 ?
Whether this is in tandem with new look through trust provisions who could possibly know ? but I think it doesn't do your lifestyle any harm by having your assets in a family trust.

I'd rather not get into a social debate about whether its morally right that some sectors of the population gain an advantage through trusts, (real can of worms that one). I'd prefer to examine how the law works today and suggest some possible extrapolations based on logic and trends.

[Bjauck]

...
Trust law is long established and I would perhaps somewhat boldly suggest most of our politicians have their family home in a family trust.
At present my understanding with rest home and in home care costs is they're looking back 10 years for gifting, used to be 5 AND they look through family trust structures in regard to regular income payments from same, I don't think they did this several years ago....

Many trusts are set up when people are in their middle-age. When they reach the age when they are likely (on average) to need nursing or rest home care they will be 75 plus. It could easily be some 25 years after they may have put their assets into a trust. For all intents and purposes they have been the de facto owners of the assets in the intervening period, but de jure not the legal owners. IMO If the settlor is applying for a government benefit and has settled assets at any time on a trust in which he/she is a beneficiary and/or a trustee, the look back should have no limit.

The widespread use of trusts as shelters for assets has tied the government's hands as far as reintroducing death duties or inheritance tax, as so many of those people who would otherwise have large estates, have put their assets in trusts. The only option may be to introduce an effective superannuation means test/surcharge. As long as it also takes into account any benefit derived from trust assets and/or income.

[skid]

Allow me to return the compliment, I really like the bit highlighted.
Some good posts here. Thanks for so many good contributions and its turned into quite an interesting thread.

I think we can all agree its a very good idea as an absolute minimum to have a debt free home by the time you retire. I also think its a good idea to have at the minimum some other asset that pays a regular income whether that's an investment portfolio, rental property, part of your existing home converted to a flat or some other reliable form of income as its a fairly modest lifestyle just existing on the national Superannuation alone even with a debt free home.

I'd like to take up the debate about Trusts.

Trust law is long established and I would perhaps somewhat boldly suggest most of our politicians have their family home in a family trust.
At present my understanding with rest home and in home care costs is they're looking back 10 years for gifting, used to be 5 AND they look through family trust structures in regard to regular income payments from same, I don't think they did this several years ago.

Now for some pure speculation.

Will that look back period increase or will they look through the family trust structure completely ?

I doubt there's the political will for the latter option but I could well be wrong but there's the distinct possibility that they'll look back further in an effort to stem the rising health care costs in this area.
In my view this underscores the importance of establishing your family trust early and getting the gifting done and dusted, (this process is helped by the recent abolition of gift duty so you can now gift it all in one step provided you're solvent and the Trust is too).

Will we see the re-introduction of some form of national superannuation surtax ?

In Australia I believe if an individual earns more than $72,000 they're ineligible for Super.
I suspect with the baby boomer population tsunami we'll see some sort of similar system here eventually and / or possibly an increase in the eligibility age from 65 ?
Whether this is in tandem with new look through trust provisions who could possibly know ? but I think it doesn't do your lifestyle any harm by having your assets in a family trust.

I'd rather not get into a social debate about whether its morally right that some sectors of the population gain an advantage through trusts, (real can of worms that one). I'd prefer to examine how the law works today and suggest some possible extrapolations based on logic and trends.

From what I have heard the gifting has to continue as before in order to be eligible for old folks home care--i believe that the gov. will look at the ''gifting all in one step'' as one payment ,meaning all the rest is considered ungifted. Its a bit of a double standard in terms of who is interpreting and for what.--(correct me if Im wrong)

[Aaron]

I'd rather not get into a social debate about whether its morally right that some sectors of the population gain an advantage through trusts, (real can of worms that one). I'd prefer to examine how the law works today and suggest some possible extrapolations based on logic and trends.

Sorry for going off thread. I agree though no point debating what is morally or intellectually right.
Trusts are bulls**t but you might as well use them if they are an option that will help benefit you. I think it is up to the leaders of the country to change this and I don't think there is any political will to do so.

[Beagle]

Okay, we've all had a good look down memory lane so its well overdue that someone actually tried to give a serious answer. Being the resident number cruncher and the one responsible for daring to open this retirement can of worms I guess I should bring out the trusty abacus and give this a serious crack. Please re-read my post below to get this thread back into context.

I agree and see that as a minimum target BUT here's another perspective from some retiree's I know well.

Mary has retired and lost her second husband to cancer many years ago. She lives in Turangi and is actively involved in the community and has very little in the way of retirement savings BUT she makes jams and pickles and knits colourful baby booties with pictures of cute farm animals on top which she sells at the fortnightly markets down there, often to tourists passing through. She makes about $300-400 per fortnight and she lives reasonably comfortably on that and her national super in her unencumbered home there which is basic and not worth much more than $100K but she seems happy enough.

Sylvia lost her husband a few years ago and lives on the National super plus a modest super policy her husband took out many years ago which pays for the monthly management fees, (about $550 a month) in the village she enjoys with a supportive and caring community. Her son manages a very small portfolio which pays her another $60 a week and she seems happy and well able to meet all her bills and travels down to see her extended family in Southland quite often.

Neil and Chris didn't have any money when they retired, in fact due to non existent retirement planning, excessive spending and some unfortunate events they still had a $200K mortgage on their modest Auckland family home. They love animals, (former manager of Animal welfare centre in Auckland), and didn't have enough room for their many different animal's and strays they took in at their home. They traded down to an nice unencumbered 8 acre property in Te Kuiti which cost around $250K from memory and run a full suite of chooks, pigs, sheep, goats e.t.c. as well as domestic animals they love including cats and dogs and seem very content. The bonus is they're close enough to Auckland and have room for their kids to come visit on the weekends and the kids seem to like having a break from Auckland.

Proof that you don't need an absolute fortune to retire on ?

Others I know have converted part of their house into a separate flat and rented it out and seem to be doing fine on one lot of rent plus the Supernanuation.

I wouldn't advocate aiming too low but I think we can all agree that human beings provided they're adaptable are capable of more than one way of skinning this retirement cat.

There's also the point that there's absolutely no guarantee whatsoever that you'll make it to say the age of 70 and even if you do its odds on favourite that you'll enjoy spending that XYZ amount of discretionary spend a lot more in your thirties, forties or fifties than you will in your nineties. Food for thought ? I think a balanced approach is best.

I've probably erred on the side of enjoying it as you go a little too much but you've got to call this thing as you see it.

What the heck is going on ? I am starting to like Paul Henry's new Breakfast T.V. show This is both scary and refreshing as the other breakfast T.V. channel has become so politically correct and lightweight its quite frankly nauseating at times.

This morning while TV1 tried to pretend they had the scoop on Gloriavale, (really John Campbell has this by the teeth and deserves all the credit), our very politically incorrect Mr Henry, (he is so politically incorrect I find him actually refreshing), had a really good segment celebrating AIR N.Z.'s 75th birthday with some really good historical clips, (he said we should be proud of our great airline, good on him), and then had a very good segment on retirement planning asking the very question I've asked in this thread. Help WTF ??? is Paul Henry stalking me and my threads lol.

He had what appeared to be a well educated expert on from AMP, (they're sponsors of the show), and anyway for those that missed it here's what unfolded.
First up it was made clear that the first question to answer was what level of income do you need in retirement to be comfortable and that everyone's definition of comfortable would be different.

Fortunately, (to put us all out of our misery), there's been a major study done in Australia the conclusion from which was that by average consensus and based on cost of living this figure is $52,000 per annum.

Many will want to debate that figure but keep in mind that when you retire lets assume you are mortgage free and your kids are no longer bleeding you for cash every five seconds.

I'm not familiar with the study but one would presume a moderate level of comfort in retirement included all the basics of living plus some allowance for holidays, running a reasonable car e.t.c. as well as money left over to help one's grandkids e.t.c. The figure seems reasonable to me so for the sake of argument lets assume I use this figure to answer the question I posed at the start of this thread.

Now I will share my own perspective on National Super as making an assumption about this is fundamental to retirement planning

We are fortunate to live in N.Z. which ever since Michael Joesph Savage initiated the social welfare system in 1935 I believe the Government has a mandate to look after the needy and less fortunate in our society. The contract for National Superannuation is something that is well embedded in our society, (you pay for it as you earn), and I honestly believe no political party would be able to completely abolish it. Yes I think there needs to be tinkering around the margins and there probably will be at some stage, probably some sort of national super surtax and maybe extending out the eligibility age to say 67... but at its core, this system remains intact, I think this is fairly certain, (not absolutely certain but to be frank neither is the question of whether one will in fact make it to their retirement age in the first place).

So working backwards, what is the current level of superannuation ? You can find the answer here for your circumstances http://www.workandincome.govt.nz/map...ension-ra.html

So for a married couple the gross super is presently $33,935.20 per annum indexed and adjusted for inflation each year, lets call it $34,000 to make the maths more simple.

So if we accept that once your kids have left home and you are mortgage free you can retire comfortably on $52,000 income per year that leaves only another $18,000 a year to find.

So therefore someone with some skill to manage their finances, (probably most on here would fall into that category I would hope), should surely be able to average 7% gross per year and therefore the amount you need to retire on is 18,000 / .07 = $257,000.

But wait there's more

Looking back at the illustrations I provided above many people have some sort of other income. For example we have a downstairs flat that's separate to our debt free house and that could easily bring in $350 a week rent if it wasn't being let to our daughter for a considerably subsidised sum, and even assuming a conservative occupancy rate of say 80% I think that would bring in about $14,500 per annum so in theory I would only need to find another $3,500 per annum to have a comfortable retirement.

$3,500 / .07 = $50,000. So there's my answer. Outrageous as it seems it would appear I have this conundrum shot to bits already. I might be able to skip my blood pressure tablet today

In all seriousness, I think a LOT of SCAREMONGERRING goes on in this retirement savings sector, mainly by parties with a vested interest. The reality as I have graphically illustrated in the examples re-posted above is the amount needed isn't some vast unattainable sum that you need to scrimp and save for your while working life, save so hard as to be worried and have a miserable existence in your youth and middle age. Life is for living and enjoyment and provided some common-sense is used I think the vast majority of us are going to have our retirement organised just fine.

[Beagle]

I agree and see that as a minimum target BUT here's another perspective from some retiree's I know well.

Mary has retired and lost her second husband to cancer many years ago. She lives in Turangi and is actively involved in the community and has very little in the way of retirement savings BUT she makes jams and pickles and knits colourful baby booties with pictures of cute farm animals on top which she sells at the fortnightly markets down there, often to tourists passing through. She makes about $300-400 per fortnight and she lives reasonably comfortably on that and her national super in her unencumbered home there which is basic and not worth much more than $100K but she seems happy enough.

Sylvia lost her husband a few years ago and lives on the National super plus a modest super policy her husband took out many years ago which pays for the monthly management fees, (about $550 a month) in the village she enjoys with a supportive and caring community. Her son manages a very small portfolio which pays her another $60 a week and she seems happy and well able to meet all her bills and travels down to see her extended family in Southland quite often.

Neil and Chris didn't have any money when they retired, in fact due to non existent retirement planning, excessive spending and some unfortunate events they still had a $200K mortgage on their modest Auckland family home. They love animals, (former manager of Animal welfare centre in Auckland), and didn't have enough room for their many different animal's and strays they took in at their home. They traded down to an nice unencumbered 8 acre property in Te Kuiti which cost around $250K from memory and run a full suite of chooks, pigs, sheep, goats e.t.c. as well as domestic animals they love including cats and dogs and seem very content. The bonus is they're close enough to Auckland and have room for their kids to come visit on the weekends and the kids seem to like having a break from Auckland.

Proof that you don't need an absolute fortune to retire on ?

Others I know have converted part of their house into a separate flat and rented it out and seem to be doing fine on one lot of rent plus the Supernanuation.

I wouldn't advocate aiming too low but I think we can all agree that human beings provided they're adaptable are capable of more than one way of skinning this retirement cat.

There's also the point that there's absolutely no guarantee whatsoever that you'll make it to say the age of 70 and even if you do its odds on favourite that you'll enjoy spending that XYZ amount of discretionary spend a lot more in your thirties, forties or fifties than you will in your nineties. Food for thought ? I think a balanced approach is best.

I've probably erred on the side of enjoying it as you go a little too much but you've got to call this thing as you see it.

I think some people need to relax a bit more and re-read this post.
https://www.workandincome.govt.nz/el...ent-rates.html

[Aaron]

I think some people need to relax a bit more and re-read this post.
https://www.workandincome.govt.nz/el...ent-rates.html

Me??
My issue is with national super welfare payments going to everyone even if they don't need it. I certainly wouldn't advocate for stopping welfare for people who need it.

[Beagle]

Me??
My issue is with national super welfare payments going to everyone even if they don't need it. I certainly wouldn't advocate for stopping welfare for people who need it.

The key issue remains is it superannuation into which people have legitimately paid into for all their working lives through the tax system or is it welfare as you've suggested ?
I subscribe to the superannuation school of thought and they are therefore entitled to it notwithstanding any other arrangements they've made for their retirement or even if they choose to still be working. (Note the link I provided earlier notes these payments as superannuation payments).

[RGR367]

Me??
My issue is with national super welfare payments going to everyone even if they don't need it. I certainly wouldn't advocate for stopping welfare for people who need it.

Hoping they still pay you one when you become entitled. You can just not apply for it though when you think you have enough savings when the time comes