David Hargreaves ponders the unanswerable question of how much money is desirable for a comfortable retirement

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By David Hargreaves

I’ve been intrigued by something of a heated debate that’s been running in the old mainstream media over the holidays.

The debate, which could be loosely termed as being about ‘how much is enough?’ appears to have stemmed from an honestly expressed opinion by financial commentator Janine Starks that $2 million is the sum needed for a comfortable retirement.

I say good on anybody who is brave enough to proffer a view on this vexed subject and would stress at the get-go that I will not be expressing any view on an ideal number in this column. That’s because I simply don’t have a view on ‘how much is enough’.

But I do have a few general views on the subject…

First up, I wonder how many people out there actually ever feel they’ve got ‘enough’ money? 

Maybe people are just coy on this subject, but most people I ever talk to who are in my estimation ‘loaded’ never seem to feel they are.

Too much ‘shoulding’

Another general observation I have is that the whole subject of saving for retirement starts to become a bit arbitrary. You should save this, you should save that. Do this. Do that. Should. Should. Should.

It’s a bit like having a discussion with a doctor over what you ‘should’ do regarding health. I’m reminded of the old joke about the middle-aged person who goes to see his doctor and says he would like to live to be 100. “Well,” says the doctor. “Give up rich foods, give up alcohol and give up sex.” “Ah, okay. And this will make me live to 100 doctor?” “Not necessarily. But it will certainly feel like it.”

The trouble is, the whole saving for retirement issue is nothing like as simple as perhaps the financial planning and wealth management industries might seem to portray it. Life is simply not predictable.

At risk of seeming rather morbid, one thing that doesn’t seem to feature much in the thinking is the fact while the average life expectancy in New Zealand is apparently currently about 82, not everybody gets there.

I’m sure we all have friends and family, unfortunately, who have been very well organised and disciplined and have excellently prepared for their retirement years – only to not see the other side of 60.

That’s sad. And it’s even more sad if people spend all their time thinking about some point in the future and kind of forget to live in the now. 

What about some fun?

I can’t recall the specific details so don’t have a link to share with you on this one, but I do remember a few years back being somewhat appalled by news coverage of a big windfall – presumably a big Lotto prize being won. The upshot was that various financial planners were approached for comment about what to do with such a windfall and they all went into the spiel about you must save this and you must save that. There was no mention anywhere of, “oh, and you might want to have a bit of fun with some of the money too”. Too arbitrary. 

Money is not a means to an end. The key thing about money is the freedom and choices it gives you. Which is, yes, why you don’t want to be short in your latter years. But there needs to be a balance found between living an enjoyable life now and not having a miserable time later. You need to hedge your bets between the known thing that is life right now and the unknown and the uncertainty that the future holds.

One of the things I always struggle with is that in talk about ‘how much you need’ there often appears to me to be some ambiguity in what your approach might be to your savings/nest egg in retirement. The key question I think is this: Do you intend to ‘spend’ your money in retirement, or do you regard your nest egg as an untouchable thing that will provide the income for you to live off, while you will never actually spend a penny of your principal?. 

Clearly, if you were talking about a nest egg worth as much as $2 million there would be a hell of a difference between budgeting on spending that $2 million during the course of your life and not spending a penny of it and still having $2 million in your bank account when you die. My suspicion is that much financial advice tends towards the latter course of action. And maybe for those with offspring and a desire to pass down wealth that is a huge priority, so fair enough I guess. For me as a divorced person with no offspring this is something I don’t have a handle on since I only need to be concerned about providing for myself.

Making it last till you are 105

And of course people would be quick to say, don’t spend your money because you don’t know how long you will live. True enough. But let’s talk about that $2 million. If we assumed that we lived to 105 (and most won’t let’s face it) even if we weren’t to get any interest at all on that money, and not receive any super payments, we could spend $960 a week for 40 years before running out of money. But obviously, if we regard that $2 million as untouchable, as never to be spent, then the equation is very different and how we need to budget is very different.

I guess the real issue is that this is absolutely not a one-size-fits-all thing and shouldn’t be treated as if it is.  

My great concern is that by being too arbitrary and by saying, oh, you have to save this much, we run the risk of alienating fairly large numbers of people. Some people may well simply say, “well, I can’t save that” and end up not trying. And then we have got problems. And, as much as is possible, we need everybody to take personal responsibility for their future financial welfare.

The real answer to the ‘how much is enough?’ question is ‘however much you have’. That’s going to have to be enough. And that won’t be the same for everybody. Not at all. But the trick is to get people to put as much aside as they possibly can – within the bounds of that juggling act between now and the future that I discussed further up.

What we do need is an environment in which people have a much greater sense of financial literacy than I see around me at the moment, as I have opined on previously

Sign it in blood

It would also help a lot if it were ever possible to get all the political parties together and agree (signed in blood!) what future superannuation payments and requirements should look like, including the crucial issue of the age at which super might kick in. It would also be good to see some firming up of rules and regulations and entitlements for people choosing to work on beyond retirement age and possibly offer incentives for those who do choose to work on such as maybe tax breaks or increased super payments according to how much later they retire. 

As for how much we need to save for older age. Well, as I’ve said before, probably the word ‘save’ itself is a bad one since it implies something very passive – the dropping of a bit of loose change into a bucket. We need an environment that encourages everyone, on whatever scale they can afford, to be ‘investors’ and to take a keen interest in improving their situations. 

We all need to know how to handle money and how to make it work for us and to take an active role in making our nest eggs as big as possible.

The other thing is, we need to reaffirm as a nation that it’s never ‘too late’. I think that’s a bit of a classic human cop-out. We get to a certain age and then say, “oh, it’s too late now”, as a way of basically ducking out of making tough decisions. Generally it’s only really too late to do something once you are dead. Up till then there’s always a chance to improve your lot.

So, how much is enough? If everybody in the country was able to genuinely say in answer to that: “Well, I’ve got as much as I could realistically muster,” then we wouldn’t be doing too bad as a country. I suspect we are a long way from that situation at the moment.

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