Investment for life's last decade

[Lizard]

Well I guess there's a lot of people out there investing for their retirement and thinking about the overseas holidays they want to take between 65 and 75, or the joint replacements they might want to pay for between 75 and 85... but what happens when you've already been retired for two decades and might still have another decade or more to go?

I'm guessing most people will be crossing their fingers and hoping they still have a bit of extra pocket money to avoid the worst of the nursing homes and to bribe the kids to turn up for regular visits in the hope of receiving an inheritance... however, assuming you make it this far, what is a good strategy to maintain your investments?

I'm assuming that someone in this category will likely want three things:

a regular monthly top up to their bank account
low risk of loss (or deterioration in total funds beyond that which would occur with drawing down a bank savings account)
minimum paperwork (including tax) and/or ease for a trusted family member to manage on behalf


Is there a simple way to do this without incurring corrosive levels of fees? From what I have seen, a decade is plenty of time for a poor advisor to lose a lot of client money and would usually cover at least one decent market melt down to provide them with an excuse! Inflation may also need to be considered over 10 years.

I am interested in any anecdotes posters can provide on solutions those around them may have chosen and problems or successes they have seen with investment for the 85+ age group.

[Harvey Specter]

Are you wanting answers taht live of income only, or will capital be drawn down as well.

[Lizard]

Are you wanting answers taht live of income only, or will capital be drawn down as well.

I guess that is going to depend a lot on how much capital a retiree has left - presumably at 85-95, all but the wealthiest are likely to be tapping capital to some degree? But I guess that can vary, which is why it is sometimes more useful to get real life anecdotes to highlight successes and problems rather than theoretical solutions.

[stanace]

I'm looking forward to the replies on this. I am in the process of selling my last investment property, ( its worth twice as much as it cost 10 years ago, but only brings in 25% more rent), and have no idea where to put the proceeds. We rent and have done so for years. Just taken on a homestayer, brings in 250 pw, not taxed.

[peat]

Considered an annuity?

Some time ago in an essay on retirement planning I wrote...

It is common in overseas retirement plans for lump sums to be used to purchase a life-long income via an annuity. These products completely remove the longevity risk and although they restrict access to capital they provide for a continuous on-going income which can even be inflation adjusted. The difficulty around these products is that they aren’t highly available in this country and that they are penalised due to current tax legislation

Something to cost out as one of the many options perhaps.
I'm just throwin this out there as one of the alternatives... cos the obvious seems too obvious to state.

[Lizard]

Annuities maybe deserve a thread of their own. Great idea, but are there actually any secure providers left in NZ (http://www.goodreturns.co.nz/article/976501380/last-annuity-provider-to-exit-market.html)? (I like Mercer's suggestion (http://www.mercer.co.nz/press-releases/1423455) that the government look at a "Super Plus" form of annuity where retirees could buy a higher level of super from the government and the investment would be managed by the NZ super fund.)

I also wonder how MSD would treat them in regard to nursing home subsidies (which I think are more asset tested than income tested)?

[fungus pudding]

I have been a property investor for many years, and now only buy into listed property trusts. Eventually I will have sold all my buildings and put all funds into a variety of the LPTs. Breaks every rule in the book, but I simply don't know enough about any other investment to rely on.
The advantages are - good reliable income, spread over a large number of quality buildings. They are all PIEs so tax effective and absolutely no administration or paperwork, record keeping etc. required. They are low geared, and you can gear into them as well if it suits. Automatically inflation proof. Excellent liquidity. So worth thinking about particularly for aging landlords. It doesn't take a lot of capital to set up a living equal to the average wage, from there some may sell off a few shares as they age, but if you can generate sufficient income you may have to keep increasing your holdings and spend your days deciding which cat-home to leave it to.
I'm sure there are plenty of equal or better ways of establishing a retirement income, but this way allows me to sleep very soundly. That's my penny's worth.

[Lizard]

That seems like a good solution in many regards, FP. I guess for diversity, could maybe add any other dividend-paying listed PIE's to the mix - the Fisher Funds KFL/BRM/MLN being the ones that spring to mind.

Maybe Birmanboy just needs to add a "model portfolio" of listed PIE's to his NZ dividend stock page and the over 85's could just buy proportionately (hopefully with a trusted agent to re-balance for them once a year)...

[BIRMANBOY]

Might I suggest the soon to be registered? charity.....(co-incidentally located at my residence) the Birman Home for Unwed Mother Cats. Anonymous donations of larger denomination bills in plain envelopes only please. May God bless you and all who sail in you. On a more relevant note..property trusts have done well for me previously but I did get a bit nervous about exposure to earthquake related issues so have shifted funds into diversified spread of debt securities and shares. All focussed on stable and reliable div/interest producers. Of course the downside of these is that stability and reliability usually go hand in hand with smallish gains as opposed to huge leaps in value. But a good mix of PIE/s, prop trusts, bonds and selected shares is a fairly "safe" way to go. I would like to see the NZX start up some new investment vehicles like for example "Dividend Producers Fund" and "Bond Fund" and also perhaps a "PIE Fund" to go along with there other "Smart Shares" offerings.
I have been a property investor for many years, and now only buy into listed property trusts. Eventually I will have sold all my buildings and put all funds into a variety of the LPTs. Breaks every rule in the book, but I simply don't know enough about any other investment to rely on.
The advantages are - good reliable income, spread over a large number of quality buildings. They are all PIEs so tax effective and absolutely no administration or paperwork, record keeping etc. required. They are low geared, and you can gear into them as well if it suits. Automatically inflation proof. Excellent liquidity. So worth thinking about particularly for aging landlords. It doesn't take a lot of capital to set up a living equal to the average wage, from there some may sell off a few shares as they age, but if you can generate sufficient income you may have to keep increasing your holdings and spend your days deciding which cat-home to leave it to.
I'm sure there are plenty of equal or better ways of establishing a retirement income, but this way allows me to sleep very soundly. That's my penny's worth.

[Kaspar]

Hey Birmanboy, how come you don't include the Smartshares funds on your website?

[BIRMANBOY]

We have a banner ad which clicks through to the Smartshares web page on our NZShares page. Our site is designed for people who want to compare options and get help in getting information to help make decisions. Smartshares are NZX index funds and they have details and data available as to makeup and results etc. Its not really necessary for us to duplicate what they do but we do direct traffic since all interest is good.
Hey Birmanboy, how come you don't include the Smartshares funds on your website?

[Lizard]

One "simple" way of investing (not so much for life's last decade, but maybe a possibility if you wanted to give a family member agency to operate the account) could be to use Rabodirect's managed fund platform (http://www.rabodirect.co.nz/cash-funds/managed-funds/features-fees/default.aspx).

I haven't tried using it, but am tempted to suggest my oldest daughter try it out. Sounds like you can enter and exit funds on-line through the Rabodirect platform with little delay. Makes it a very liquid/simple way to invest in funds. I think the tax & paperwork would all be managed for you through the platform, although can't confirm this.

Currently you can access over 30 funds from at least 8 providers - AMP Capital, ANZ Investments, Brook Asset Management, Fisher Funds, Harbour Asset Management (First NZ Capital), Mint Asset Management, Pathfinder and Tyndall Investment Management. Full list here (http://www.rabodirect.co.nz/cash-funds/managed-funds/find-funds/default.aspx), complete with morningstar ratings and all the information on performance, fees etc to help with choices.

Rabodirect charges 0.75% for each purchase of a fund, but no exit fee. Minimum amount is only $250, which makes it easily accessible for beginner investors. Some funds also have a buy-sell spread on price, but others don't. I presume any entry/exit fees are the same as buying directly (i.e. it would probably be cheaper to buy the funds at source, but the 0.75% seems pretty good for having ease of on-line transaction, no minimum $ amount and paperwork all taken care of).

Not sure if there are other on-line providers offering similar services yet?

[macduffy]

I've just stumbled across this thread, Lizard, and as one who made his first investments in the 60's - no, not the 1860's, the 1960's! - and his first losses shortly thereafter - perhaps I could offer a couple of thoughts.

First, I don't subscribe to the rule of thumb that says that one should increase one's interest bearing assets over time to equate one's age to the percentage of total investment assets, eg a 65 year old should aim to have 65% in interest bearing/cash and only 35% in equities. I reckon that the cost of living is increasing too quickly for that, despite what official inflation numbers would have us believe. So I'm an advocate of keeping up with or ahead of inflation via a healthy dollop of equities. In recognition though of advancing years, I'm in favour of increasing exposure to solid defensive stocks - the Woolworths rather than the junior miners - in the expectation (hope?) of more regular income and less shareprice volatility.

All that depends on one retaining the enthusiasm and ability to remain involved. Otherwise, it's time to hand the whole business over to a, hopefully reputable, fund management outfit, or two, pay the fees and try not to complain too much!

[peat]

One "simple" way of investing (not so much for life's last decade, but maybe a possibility if you wanted to give a family member agency to operate the account) could be to use Rabodirect's managed fund platform (http://www.rabodirect.co.nz/cash-funds/managed-funds/features-fees/default.aspx).

. Sounds like you can enter and exit funds on-line through the Rabodirect platform with little delay. Makes it a very liquid/simple way to invest in funds. I think the tax & paperwork would all be managed for you through the platform, although can't confirm this.



Yes Lizard , this is what I use for cash and mutual funds... very easy for all types of investors, and not expensive if you compare some of the options. Plus really good rates for cash and TD's. Its pretty much Investment in a box if you don't want to make specific security choices.
The funds I use seem to track the related indexes fairly well.
There is a three day delay for the purchase/sale of equity funds I've used. Which disinhibits trading but that is okay coz this is investment.

[kiora]

I was discussing annuity's with an accountant yesterday specifically ones from USA. He indicated these did well but the gains where wiped out by the strengthening NZ/US$.
So annuity may be an option if you can remove exchange rate risk or now when exchange rate could go the other way ?


Considered an annuity?

Some time ago in an essay on retirement planning I wrote...

It is common in overseas retirement plans for lump sums to be used to purchase a life-long income via an annuity. These products completely remove the longevity risk and although they restrict access to capital they provide for a continuous on-going income which can even be inflation adjusted. The difficulty around these products is that they aren’t highly available in this country and that they are penalised due to current tax legislation

Something to cost out as one of the many options perhaps.
I'm just throwin this out there as one of the alternatives... cos the obvious seems too obvious to state.

[peat]

I was discussing annuity's with an accountant yesterday specifically ones from USA. He indicated these did well but the gains where wiped out by the strengthening NZ/US$.
So annuity may be an option if you can remove exchange rate risk or now when exchange rate could go the other way ?
You would always have to hedge the exchange rate to be certain to achieve goals and this adds to expense in an already expensive solution.
On further consideration I think really simple along the line of various duration TD's and a small proportion of equity funds - with drawdown being imposed appropriately on both to achieve income goals - is the most practical solution. However, this does not solve the longevity problem.
Taxpayers stump up though! They provide an annuity known as NZ Super. Is it enough? No, and its bound to be reduced as the generations of MP's change.

[karen1]

Re FP's post on LPT's, I had thought it sounded like a good idea, and have a small holding in GMT, and was wondering if I should build on it. But this article today has me re thinking:

http://www.stuff.co.nz/business/money/9685597/Investors-lose-out-to-fund-managers

I wonder if I have become complacent with the ease of owning GMT, and whether others might find the same, with other LPT's.

[iceman]

Re FP's post on LPT's, I had thought it sounded like a good idea, and have a small holding in GMT, and was wondering if I should build on it. But this article today has me re thinking:

http://www.stuff.co.nz/business/money/9685597/Investors-lose-out-to-fund-managers

I wonder if I have become complacent with the ease of owning GMT, and whether others might find the same, with other LPT's.

I am in the same boat karen1. Have held a small amount of GMT for many years and have enjoyed the regular divie payments and have used the DRP, resulting in a very low average buy price. This article when I read it today concerned me a little but my experience and satisfaction with the results from my GMT investment weigh heavier for me.
But maybe you are right and we've become complacent.

[karen1]

Thanks iceman, article certainly food for thought. Will be interesting to see if others pick up on it and have an opinion.

[couta1]

Thanks iceman, article certainly food for thought. Will be interesting to see if others pick up on it and have an opinion.
I sold out all my property trust holdings last year when they were all near their highs saw the higher interest rates coming and that the units were overpriced,I held them for several years,I think they still have merit especially if your on the top tax rate as you pay the lower 28% rate and don't have to include the income in your tax return as they are all PIE entities,this doesn't increase your gross income which has advantages

[Joshuatree]

Im not there yet and am still managing my portfolio myself but other options are getting more interesting as i would like to spend more time experiencing life while i can and sitting in front of a screen less.