After people retire, they need to keep saving and investing to maximise their nest egg, rather than parking their money in the bank, according to an Australian retirement savings expert. Graham Harman, senior investment strategist for Australasia at Russell Investments, said adequacy was the biggest challenge for retirement savings because of increasing longevity, low investment yields and the global financial crisis. We couldn’t agree more. The unpalatable truth is that people who have inadequate savings should continue working in retirement, spend less and save more. Mr Harman said research showed that for every dollar spent after retirement, 10c came from contributions, 30c came from the investment earnings while the person was working and a further 60c came from the investment earnings made while in retirement. This second unpalatable truth means you can’t afford to leave investments, after retirement, in cash (bank deposits) because of inadequate returns. Mr Harman also said changes needed to be made to how that money was paid out. The savings industry had to come up with ways to pay investors a pension-like income while still offering the potential to withdraw the money in a lump sum, for example to pay for an operation. In New Zealand once people become eligible to withdraw their money from KiwiSaver they can do what they like with it. There is nothing to stop retirees from blowing it all on a new car or holiday.
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