Live From Howick

Ssshhh! Futures under construction — May be one is Yours!

 

If you are reading this piece, clearly you are not dead, expired or defunct; in which case we have in common that we are ageing. Slowly, quietly time slips away until the elderly time is upon us, then the noise starts. The fact that old age and ‘retirement’ comes to us all is obvious, everyone knows it’s true but like a big fat elephant in the room we are somehow able to ignore its existence.

Even a slow train comes eventually and the Boomer thing is the biggest of the slow trains with 77 million of them aboard. (High maintenance old folk with high expectations – expensive!). 77 Million aged persons beginning to fall out of the workforce and moving forward to retirements filled with leisure and fulfilment. Really?

 Nasty reports and articles in the media are starting to tell a different story. UK daily mail reports that of the 7.3 million people aged between 55-64 years 26% have not one penny in a pension fund. (30% of those aged 45-54 and 47% of those aged 25-34 have no pension fund.) In 1967 8.1 million private sector workers had a company pension, in 2004 the figure was 4.8 million and today 3.3 million and dropping; all at a time when the population has increased by approx.19%. Recent market movement has seen the pension fund holding of millions of workers devalued to a figure less than the actual contributions made. (NZ. would be similar or worse proportionally.)

A recent Rabo direct survey (8/11) found that half of Kiwis don’t save and that, interestingly, it is not just low income earners who struggle to save, it’s across the spectrum.

Baby Boomers in their millions are going to be compelled to work longer; in fact there are a host of new considerations to be faced:

• We will have to accept personal responsibility for our retirement finances.
• Employer subsidised schemes are on the decline, it is unlikely that trend will reverse.
• We will be extending our careers or retraining for alternate/second careers. Simply for the money, or for a sense of social involvement. The process has already started in the USA.
• Retirement will be for a looooong time, maybe as long as 20-25 years – in any case far too long to be poor, scrimping and basically doing it tough.
• We are going to live longer, the good foods we enjoy here and modern medicine will see to that. (A girl child born today has a life expectancy of approx. 100 years. Frightening! For men it is a little less.)
• You can guarantee that Universal super will become a little less ‘Super” and probably a little less universal. A safe bet is on taxes increasing too. Qualifying ages will for sure rise.
• Even possessing the funds to be able to afford retirement is no guarantee of enjoyment, 20 years is a long time if you’re bored, unfit, lonely or infirm.

What to do?

 The most difficult step is always the first one; recognising and accepting the true situation. The issue is far too big to ignore, you would simply have to take steps to address the problem. Actually taking any step, however imperfect is preferable to inaction; imperfect plans imperfectly implemented will generate a better outcome than doing nothing.

Acceptance of the responsibility for your own financial wellbeing inevitably requires adjustment to lifestyle, sacrifices actually. We are not good at that, we suffer from lifestyle inflation. It is self evident that saving won’t happen if spending rises at the same rate as income; often the spending comes first!

Diana Clement wrote this sentence for the Herald “Sometimes we can never get enough of what we don’t need” and I observe it to be true; new bigger homes, cars boats, exotic expensive foods and fancy Doodads. An inevitable consequence of saturation advertising.

We have come to believe we deserve big rewards, we are entitled to …… well just about anything we want and certainly entitled not to have to budget.

I suspect that our world has run out of wriggle room where spending is concerned; fiscal austerity will be the new focus as governments worldwide try to stop debt escalation. Entitlements today will become privileged ‘options’ tomorrow; ‘means testing’ at ever lower levels will become the norm.

Avoid the train smash in advance rather than try to live with the consequences in retrospect; it’s easier. There are all sorts of options including shares, Kiwisaver type vehicles, precious metals and of course real estate. All have a story to tell and can play their part as building blocks in your better future.

The folk today that we have helped to create retirement incomes and capital bases have in common that they all started in small uncomplicated ways and then made accelerated progress as their confidence grew along with their capital. Perfectly ordinary folk in all respects except that they were prepared to defer a little gratification and take a step to guarantee some improvement to their prospects. Without exception they overestimated their one year result but absolutely underestimated what they would achieve in 10 years.  Ironically they did all start with Real Estate which ultimately gave the ability to invest in the shares etc.

It is not rocket science, not tricky, not even really hard. Results have been created with a simple plan, a little courage and stick ability over time; whatever volatilities the market has thrown our way.

Fact is that we will have to create an income whether times are good or times are tough. There is no alternative other than to live on the $260 – $340 a week of the Government largesse, or to ffffade away and eventually expire.

 Real Estate is the option I understand, know and see work every day. It can play a part in creating an ‘Elderly time’ worth the experience; take some time and find a trusted adviser ask them show you how it has been a success for others. 

Nothing to lose, all to gain; should be a no brainer!

August 24 2011 | Uncategorized | No Comments »

What future in a crazy world.?

In a world going topsy it’s difficult to plot a sensible course, a safe way to your destination, one that sees you make progress, one that provides some hope for a secure future.  Little is more paralyzing than the fear arising from rapid change in a completely unexpected fashion; we have seen a lot of that in the past few days and weeks.

Who would have thought we would be watching live footage of the British society imploding in such a nasty way; the loss by America of the prized AAA credit rating and the resultant extreme volatility of the share markets and currencies.  Fortunes made and lost in a matter of heartbeats, trillions vaporized and rumour upon rumour developing lives of their own; almost beyond credibility. 

As it happens some of the events were predictable to a degree, the wrangling between the Democrats and Republicans could only ever have come to a sticky end; the most telling outcome to me was that the American representatives held their own wellbeing and interests above that of the nation, little was effected to rectify the underlying problems and so the downgrade. 

We are quite removed from the vortex of the storms, miles from anywhere and blessed to be a small nation that produces excess protein in a world hungry for it.  To some degree we are insulated from the worst of it. We are subject to a degree of risk as a benevolent, socialist country that offers entitlements and benefits we cannot afford and have created similar elements as those erupting in the UK.  Our big risk is a workforce with a significant proportion of poorly educated, poorly skilled, lowly paid workers. The underclass if you like, a section of society that will not enjoy all the benefits available in NZ and be resentful for that.  As disenfranchised as the youths wreaking havoc in the UK. 

Commentary over the past few years has indicated that none of these outcomes should come as a surprise, they were largely predictable.  Any institution (household, business, and nation) that consistently spends more than it earns must sooner, or later, run out of money. Large scale printing of money thieves wealth by stealth via inflation and plays a large part in the impoverishment of the middle and working class sectors of society by requirement of ever increasing hours to be worked to pay for staples such as food and rent –essentially a poverty trap.  Sadly, inflation is also a tool well used by the affluent to create capital. 

What about houses, residential rentals etc.?  None of the recent shenanigans caused weekly rents to vary, house prices to fall or even to rise.  As the table shows the 6 month results for this neighbourhood are remarkably consistent, probably as a result of the lack of liquidity of the asset combined with the lack of change in the primary price driver –demand.                       

Statistics courtesy of REINZ.

 Real estate is not immune to lack of consumer confidence, relative unaffordability and difficult access to funds. We see results of some of these factors in the fact that new housing starts are at extreme lows, housing occupation densities are high and rising and that prices are holding steady, the lower levels of sales that do take place do so reasonably quickly. Low confidence levels, poor sense of job security, debt aversion and difficulty accessing money account for the low volume of sales; as soon as the confidence factor alters –watch the sales volumes and prices go.  Real Estate is an asset that does benefit from inflation, well the owners do. 

What will see confidence rise? Probably a series of small incremental improvements in the NZ accounts followed by a world cup or two would do the trick in the absence of any major catastrophe. The rebuilding of Christchurch and flow on from good commodity prices enjoyed by the farming sector will help, consumers are already tentatively relaxing the death grip on their wallets. 

Ironically, we are reasonably insulated from all but the most fierce of storms, the biggest danger we face is fear itself.  Fear is by its very nature contractive, causing paralysis and inaction. As we get accustomed to our circumstance it becomes our norm, we lose our fear and at that stage we start to plan, actuate those plans and then –hallelujah – we progress.  Essentially, the first step in our progress is acceptance of the fact that our futures lay fairly and squarely in the palms of our hands and absolutely nowhere else.  Radical and simple but no progress is possible without assuming responsibility for our own individual wellbeing. 

I can predict ageing, retirement, educating the kids; actually life continuing as it should, new houses will be built to accommodate new generations, some for owners and some for tenants. They will progressively cost more to buy and to rent.  Actually history repeats and the more things change……… 

Nothing so far has come about that stopped us dead as a nation. Britain joining the EEC and cutting us loose was to my mind a bigger threat to our well being than the current circumstance and we survived that as well as every other calamity that befell us subsequently. 

Life does go on, events will sort out and even if a new reality exists, we will prosper.

 

August 16 2011 | Uncategorized | No Comments »