Throughout our lives we accumulate assets in the form of money, housing and all kinds of possessions. What for? Do we draw down on our wealth to preserve our standard of living in old age; keep them for a "rainy day"; or leave them as an inheritance?
What assets do older people have?
Superannuation and Pensions
The value of entitlements to New Zealand Superannuation can be seen as an asset, although we can’t turn them into ready cash. On retirement, or when they reach 65, some people receive pensions or lumps sums from private or occupational superannuation schemes and many more will get cash from KiwiSaver, as their schemes mature. Lump sums can be invested, used to clear debt, or spent. Often people use the money for home improvement, to replace cars or major household items or to take that "trip of a lifetime". What are people going to do with their KiwiSaver lump sums, which may be more money than they have ever seen in their hands before? There is no requirement at present for them to be invested. What happens if they are frittered away? Or invested unwisely? It will be an individual decision what to do.
Bear in mind that not everyone will get lump sums from KiwiSaver. Many people either can’t afford or choose not to contribute to the scheme. Many will have gaps in their working lives for caring responsibilities, study, illness or unemployment. Some will have chosen a KiwiSaver scheme which has not done well – whose fault is that?
According to the 2012 New Zealand Income Survey, 54% of people aged 65 and over had income from investments, reflecting lifetime savings, and this source accounted for 15% of the average income of people in this age group. A lot of people had investment income, but half of them received less than $29 per week. These figures have gone down since the 2009 survey, but not by a great deal – probably related to the effects of finance company failures. The Reserve Bank estimated that these led to over $6 billion in savings being frozen, impacting on nearly 200,000 people
Home ownership is the most common form of asset holding in this country. Three-quarters of people aged 65 or over live in owner-occupied housing, the majority mortgage free. A 2007 Treasury study found that 5% of people aged 65-74 and 2% of those aged 75 and over owned rental property, so rents are not a significant source of income overall.
The majority of older New Zealanders, therefore, have a substantial asset in the form of their homes, which are probably growing in value over the long term. The average house price over the whole country is nearly $400,000, substantially more in Auckland. Home ownership also represents a lifetime of saving.
What can we do with these assets?
For most older people, New Zealand Superannuation provides a basic income, supplemented by other regular pensions and income from savings and investments. Investment returns, as we have seen, are small in dollar terms for most people. But, with careful management by individuals and good consumer protection by the powers that be, they can deliver that bit extra to make life more comfortable. Having a financial nest egg to cope with unexpected costs will help to give peace of mind and can ensure that older people don’t go without essentials.
This is fine for "liquid" cash assets (bank deposits, bonds, and shares) which can be realised comparatively easily. We can even sell off material possessions – paintings, antiques, jewellery – despite the heartache this might cause. (Not that anyone was interested in my stamp collection, which I had hoped would contain something rare and valuable!)
Money tied up in our homes is harder to mobilise.
In my next blog I will explore what the options are in this area.
Dr Judith A. Davey
Age Concern New Zealand voluntary policy advisor
Senior Research Associate, Institute for Governance and Policy Studies, Victoria University of Wellington
Age Concern NZ blog http://acnzonresearch.wordpress.com/