Lifetime Retirement Income Webinar - Q&As

We hosted a "Retirement Income for Life" webinar with Ralph Stewart and Chelsea Delvin from Lifetime Income Retirement to answer some of your most pressing questions about retirement.  You can watch the full webinar recording here.

So as promised here are the answers from the Lifetime Retirement Income Team.

1. Do joint homeowners have to both be over 70 to make use of home equity offer.  We have an 11 year age gap.

At the moment yes, Lifetime Home requires both homeowners to be aged 70 or over. This may change in time. 

2. Most of our funds over the last 10 years have been lost by fund companies and finance companies going into liquidation, even those refunded by experts. We have our home, but are reluctant to once again place money in fund managers.

Agreed, the NZ Financial Services history has much to answer for. A lot has changed and Government led investor protections are much stronger now and are recognised as some of the best in the world. Following is a summary of what is different now and what the new protections available to investors are:

- The Financial Markets Conduct Act (FMCA) was enacted in 2013 to supervise the NZ Financial services industry.

- The FMCA requires:

• All investment managers in NZ to be licensed by the Government and to report their financial health to the Government every month.
• All investment managers in NZ must be supervised by a Trustee company appointed by the Government to ensure that the promises made to investors are fair, reasonable and achievable.
• Under the Act, fund managers need to prove that the products and services they offer are fair value for money.
• All investors’ funds are held by the Trustee, rather than the Fund Manager. This means that any failure by the fund manager does not result in loss for the investor.

- While the FMCA is a huge step forward, in our view the ultimate investor protection lies with the Board of the company offering the investments and the quality of the governance over the operations of the business. At Lifetime we are very proud of our board and strongly believe we have one of the strongest governance structures in the industry. 

As an extra layer of protection, because Lifetime is a fund manager, it is also monitored by the Financial Markets Authority (FMA) and provides the FMA with regular updates.

3. What happens to my money if Lifetime goes bankrupt?

If your money is invested with Lifetime and we go into bankruptcy your money is not affected. This is because the FMCA requires that your money is held by our Supervisor, the Public Trust. The Public Trust is a separate entity from Lifetime, it is at a Government-owned organisation that is the supervisor and the custodian of the Lifetime Retirement Income Fund (Fund).

When you invest with Lifetime, your savings are deposited into a Public Trust bank account. Public Trust invests your savings in the assets stated in the Lifetime Retirement Income Fund Product Disclosure Statement.

Public Trust supervises the administration of your capital at all times. Lifetime can only withdraw capital from your investment if we need to make income payments to you, pay fees and taxes on your investment, or if you instruct Lifetime to withdraw all or part of your investment.

4. We are in our mid 70s and in the process of selling our large family trust property. We plan to long term rent and hope to supplement the pension with interest from our invested capital some will be in the trust. What would be the best way to do this?

We cannot provide personalised advice but happy to connect you with a qualified independent professional if you would like this.

As a general comment, the benefits Trusts originally provided have been eroded through time as laws and taxes have changed. For example, taxes on trust property are expected to increase within the next year. As above we recommend you seek qualified independent professional advice and happy to connect you.

At Lifetime we believe that for most retirees, living off interest alone will not be sufficient for a comfortable retirement. Over the course of the next 20 years there will be years with great returns and some with negative returns. So, you could be living good years and some not so good years if you decide to live off interest alone. 

This is why we developed Lifetime Retirement Income. The product invests your retirement savings in a specialist retirement fund designed to maintain sufficient capital to support a retirement income for life. The produce achieves this by utilising the returns and capital to pay you a consistent and regular fortnightly income, across the bad and the good years

Try out the Income Projection Tool here, it will give you an idea of how much you could get each fortnight from a lump sum of retirement savings. 

Also check out the Buckets of Money for Retirement which will help you discover how much income you will need to pay for your day-to-day expenses.

5. What are the pros and cons of reverse mortgages?

The good bits of a reverse equity mortgage: 

• Tax-free cash for a more comfortable retirement.
• Lifetime occupation rights means you can stay in your home for as long as you wish.
• You will never owe more than your home is worth; lenders provide a no negative equity guarantee.
• As the owner you get the benefit of increases in the value of your property over time.
• Multiple drawdown options to meet your specific needs at a point in time. These can include an initial lump sum, regular advances or a line of credit for unexpected costs.

The not-so-good bits

• You cannot fix your reverse mortgage interest rate. Reverse mortgages are only available at a variable interest rate. Over the last two years we have seen the variable interest rates for mortgages shift from 5.95% to 9.75%. This means that in most cases, the amount of equity the homeowner retains in their own home, is unknown.
• Reverse equity mortgage rates are higher than normal mortgage rates. The current Heartland Rate is 9.75% compared to??
• Interest compounds so the equity in your house may be eroded. This erosion tends to speed up with time as interest rates increase. There are limits on the amount you can borrow, what regions you can borrow from and the types of property that are eligible
  

6. How do I best distribute property to son & daughter?

Not our area of expertise, recommend seeking out lawyer who works in Estate Planning. 

7. I have a company share apartment. Can I use equity in this?

In the initial phase of Lifetime Home, we won’t be able to offer equity release people living in apartments. This may change in time. 

8. How can I save enough to make a difference?

Everything you save will make a difference when you reach retirement, no matter how small. 

If you are saving for retirement this website has an excellent calculator that will help https://sorted.org.nz/tools/retirement-calculator/ 

If you are wondering how much you might need to sufficiently cover your day today expenses in retirement, we recommend reading our Buckets of Money for Retirement, it will help you develop a savings goal.

Try out the Income Projection Tool here to figure out how much you will need to save for retirement.

9. Is owning a home a secure retirement plan?

We cannot provide personalised advice but happy to connect you with a qualified independent professional if you would like this.

Generally, there are two ways that owning your home can support your retirement:

Firstly, owning a home mortgage free substantially reduces your day to day expenses because you do not have mortgage payments or rent payments that will need to be paid  out of your New Zealand Super. If you own your home, even if council rates become hard to pay - there is support for older people through a rates rebate scheme. 

Secondly, owning your home allows you to look at equity release options such as Lifetime Home or Reverse Mortgages. Using these products, you can release money from your home to support your retirement. 

If you do look at options to release equity from your home, ensure the product includes the right to life occupancy. Also, particularly important for reserve mortgage products, make sure there is a clause for a no negative equity guarantee. 

You won’t need to worry about this if you choose to use the Lifetime Home Equity Release because s it is different to a reverse mortgage in that you will never hold less than 50% in your home.   

10. What are the tax repercussions for drawing down from Kiwisaver after someone is 65. Do they have to pay income tax on that?

Drawing down from your capital (money) in KiwiSaver or Lifetime Retirement Income Fund will not impact your NZ Super payments once you turn 65. KiwiSavers and other Portfolio Investment Entity such as Lifetime Retirement Income Fund are tax efficient. You are only taxed on returns, and these are at Prescribed Investor Rate of Tax, which is currently at a max of 28%.

11. How do I calculate how much if my savings I need weekly in retirement. Will I have enough money to retire comfortably?

A comfortable retirement is unique. We all have different understandings of comfortable. This is why we developed the Buckets of Money for Retirement Planning Guide to help you plan for your retirement.  

12. Is it worth doing part time work once you retire or does it take too much away from your pension - how does it affect this payment?

It depends which if you choose to associate your secondary tax code to your super or job.  

For example, you may choose to have your NZ Super Income Tax code as M and your part time job as S (which denotes that your total income across NZ Super and your part time jobs will be between $14,0001 and $48,000). 

In this case your NZ Super is not affected, it will be your part time job which receives the higher tax code. It is worth heading to this site for qualified information.

Don’t let concerns about secondary text stop you from getting a part time job. The tax system takes into consideration your whole income. 

13. II am 65 and still working. My house is mortgage free but not worth enough to make downsizing viable. I have some kiwi saver savings but not nearly enough to retire on. How can I get the best returns on my Kiwisaver funds in the next five years?

We cannot provide personalised advice but happy to connect you with a qualified independent professional if you would like this.

Sorted is a free service by Te Ara Ahunga Ora Retirement Commission, the Government-funded, independent agency dedicated to helping New Zealanders get ahead financially. They offer a number of free tools, including Investor Profiler that helps you find an investing strategy that suits you best, by determining the type of diversified fund that suits your personality, situation and the timeframe you’re investing for.

https://sorted.org.nz/tools/investor-profiler

14. Is a mortgage-free home that you can sell to downsize at retirement a good option?

Is a mortgage-free home that you can sell to downsize at retirement a good option?

We cannot provide personalised advice but happy to connect you with a qualified independent professional if you would like this.

For many, downsizing is the best way forward because it gives a smaller, more manageable house and some cash.  Nevertheless, attractive though it is, downsizing does have some traps.

First, you need to consider the market you are selling into and buying from. A clear idea of how much you will realise for your house and what you will need to spend on a new house is critical. When selling, remember that real estate appraisals are often optimistic, and when buying, a prevalence of “deadline sale” and “price by negotiation” sales, means it is difficult to know exactly what you will have to spend. 

Moreover, do not forget the cost of moving. Real estate and legal fees, removal costs and any required work on the new house can add up to real money. I know many instances of people who downsize but find they end up not much better off: maybe they got less than expected for their house, paid more than expected for the new house or did not properly account for costs (or perhaps an unfortunate combination of all three).

Be especially careful if you are downsizing by moving to another town. You will not know the market in the new town, nor know locations or house types to avoid. Moreover, many older people find it hard to make new friends and connect with a new community.

15. Rather than getting your retirement savings (eg, Kiwisaver) in one lump sum, how do you "trickle it down" so it's a regular source of income?

Rather than getting your retirement savings (eg, Kiwisaver) in one lump sum, how do you "trickle it down" so it's a regular source of income?

The Lifetime Retirement Income Fund has been developed for the purpose of decumulation, not accumulation like KiwiSaver – terms that are financial jargon for saying spending versus saving. When you hit retirement, you will be in the spending phase of life and your money needs to be managed accordingly, so that you can meet your day-to-day expenses and spend with confidence.

Assisting KiwiSavers to make the transition from saving for retirement to spending in retirement is fundamental. There are two fundamental elements;

•    Everyone’s retirement is unique, there is no one size fits all approach, and;
•    Calculating a retirement income is not a set and forget exercise, simple annual reviews ensure there are no surprises as you grow older.

In the world we now live in, where information and calculators are readily available online, this process can and should be cost effective and simple for people to use.

For example, Lifetime Retirement Income provide a free online calculator (www.lifetimeincome.co.nz/income-calculator/lifetime-income-projection) which allows people to consider their retirement income options without detailed financial advice. The Lifetime Retirement Income Calculator considers;

•    The impact gender has on aging;
•    Individual expected mortality;
•    Personalised Prescribed Investor Rate for tax; and
•    Expected investment returns.

People can use the Lifetime Calculator to consider different mortalities and spending levels to tailor the results to their individual retirement lifestyles. The Lifetime Calculator is regularly updated with the latest investment and mortality projections to allow retirees to check in every year or so to ensure their income remains on track to last their lifetime.

16. What areas of financial gain is best to invest my savings in?

That’s a big one and best answered by a professional financial adviser, more than happy to provide contact details with a range of advisers, close to where you live. Just let us know in the comment section below.

17. With only limited savings in Kiwisaver, a mortgage, and my home my only asset, how do I begin to plan for retirement?

 We cannot provide personalised advice but happy to connect you with a qualified independent professional if you would like this. You begin to plan for retirement today, it is never too late. Firstly, planning for retirement is more than financial. Planning for your retirement starts with finding your passions and purpose in retirement.

The purpose of money is to provide the you with the means to enjoy life. It is really important to be clear about what brings you enjoyment. Knowing your passion helps you set goals so you can use your money effectively. So, the starting point for any financial plan is to uncover the things that are really important to you – your passions and purpose.

1. What did you love to do in your childhood? Children are driven by curiosity and creativity. Childhood interests are often the source of clues for what your true passion is.

2. What are you good at? If you don’t know the answer to this question, your friends and family will tell you!

3. What activities make you feel happy? These are things you probably need to do more of.

 4. What have you secretly dreamed of? Imagine there are no barriers of time, money or fear of failure. Your secret dreams will point you to what your passion is.

 5. What do you read or learn about in your spare time? 

Once you have identified your passions and purpose, you are in the best possible place to start your financial plan, which will guide you to allocate your financial resources to support your goals. 

Buckets of Money For Retirement can help you with the financial planning side of retirement.

Also check out our online webinars about retirement: https://www.lifetimeincome.co.nz/retirement-life/lifetime-webinars 

Finally, start projecting how much you could generate in retirement today. https://www.lifetimeincome.co.nz/income-calculator/lifetime-income-projection/ 

Lastly please don’t be afraid to seek financial advice, there are some great financial advisers out there who can make a big impact on your financial position.