What can I learn from retirees?
I had a chat with a retired couple, Keith and Anne (not their real names) recently and I was torn between being polite and not too nosey and outright wanting to ask them every nitty gritty detail about their lives. I settled on the middle ground but found myself left wanting. I think I’m going to have to accost a few more older people on the street, ask them intimate details about how they have dealt with money and then just disappear down the road before they know what hit them.
Why the sudden interest in how retirees handle money? Well, it’s not a sudden interest at all. I’m a pretty keen observer of others and the decisions they make, not so I can point out what they did right or wrong, no not at all. I want to know why they made the decisions they made so that I don’t muck it up myself if I find myself faced with the same decisions. Others have been around the block a few times and I want to learn from them where exactly the shortcuts and dangerous dogs are. For example a couple I know well were coaxed, in their mid sixties, into mortgaging their mortgage free home and investing the lot in a scheme “so cunning you could stick a tail on it and call it a donkey”. They lost the lot. Everything. So, I won’t be doing that (spending $650 on Bitcoin does not count ya’ll, the stakes are much lower!)
Thinking about this most excellent modern day personal finance community I find myself a part of, gathering information is not about working out who has what, it is all about offering up information in the hope of being of service to others. And that is a pretty cool place to position myself and it’s what I’m endlessly trying to achieve with my blog. How can I help you?
So what did I glean from this Keith and Anne duo? They were actually trying to have a nice Saturday morning and get through the entire newspaper from cover to cover while I was chirping away with questions like:
“How much did your first house cost and how did you pay for it?”
“How much is a superannuation payment today?”
“Who taught you about money?”
“Do you apply the 4% rule?” Say what?
They took me way back to 1967. They got married and headed off on their honeymoon. After a good old time they returned home and there was about a two week lull before it was announced, by Anne, that she would control “the books” and Keith would step back and not get in the way regarding money. Sounds a bit extreme! Now, Anne is not an overly stroppy character so this non negotiable statement surprised me (and probably Keith) a fair bit. But he credits this as a pivotal point because he knew enough about himself that if left in charge with the money coming in they would have struggled every day, much like his parents did. This has been a winning strategy for fifty years now and both are more than happy with it and most importantly, not broke!
Keith was a bit of a spender so to give him a bit of freedom AND to rein him in at the same time he has always received ‘an allowance’. If the gender roles were reversed I would be crying “women’s liberation” because to my 2017 brain this seems unfair and domineering, but once again it works! He can buy his Lotto and enter weekly meat raffles and goodness knows what else with impunity and just to show that they do indeed share, she gives herself the same allowance and buys whatever she likes. And this is the good bit, she happens to like saving. So at the end of each year she has a lump of cash invested earning interest and he has… contributed a lot of meat to the freezer because he is a dab hand at winning meat raffles and from time to time he has had a few decent Lotto collects as well! This arrangement is an acknowledgement of the fact that they are different people with different personalities and interests and they have found a work around that they are both extremely satisfied with. Everybody kicked a goal folks!
Have you ever thought what a house might have cost you about 45 years ago? I can tell you that it’s a handy lesson in inflation. Their first house was actually a new build in a brand new subdivision where their section cost a whopping $1,750. Using an inflation calculator I can tell you that is $110,000 in today’s money and they managed to save enough money to buy this section outright. They had saved hard since they met and did this by both working full time and also, once married, they took the opportunity to live together in a family bach rent free for 18 months (not before marriage of course!) They were 25 years old when they started building their house. If only they had purchased another 10 sections and land banked, just a mere 45 years later they would have been rich! Yes, I am JOKING!
The house itself was going to cost them top dollar so where did they get the rest of the money from? In the late 1960’s/early 1970’s, you did not go to the bank for a loan. There was no such option. Just think about that, there was no mega mortgage industry to try to coax you into lending their money, no tempting offers of credit cards and cash back, no revolving credit etc. Instead you went to what became known as the Housing Corporation of New Zealand which was a government run scheme and you received money off them by way of a State Advance. Keith and Anne borrowed $6,750 at a 3.5% locked in rate. But they still did not have quite enough to get the house built so they topped this up with an additional interest free loan of $3,500 from “The bank of Mum and Dad”. So, all up when the house was completed in 1970 the house and land cost $11,900; that is a whopping $702,000 in today’s dollar. Holy Heck! What on earth is your house going to be worth in 40 years time?
For their money they built a one bathroom, three bedroom home with no garage that was small but comfortable enough to house the three children they went on to have. Just like today, they ploughed all their dosh into their house. That meant they had to be super frugal when they moved into the place because there simply was no more money available as they had borrowed to the max, both from the government and from their parents. There were no trips to Harvey Norman to buy all the latest furniture and whiteware. No such places existed. There was no credit available, so you couldn’t borrow even more money and buy new furniture and they were also confronted by an enormous LACK OF CHOICE when shopping.
They went without, which was really easy to do because in the 1970’s there was stuff all in the shops to buy! I have family letters from my grandmother who moved to New Zealand from England at about that time and in them she was in despair about how little there was to buy - and don’t get my grandmother started on lack of fashion available in the shops here in NZ!
After Keith and Anne moved into their new house with their second hand furniture and the minimum amount of stuff they got themselves settled and then they saved again, to buy a couple of nice chairs to sit on. And saved again to build a pergola outside. And on it went. You saved hard, THEN you bought something.
So, large parts of this story sound terribly familiar to me. Buying a house is an enormous financial stretch whether you build in 1970 or 2017. You can’t hope to save the total amount yourself and need an ability to save and an ability to borrow, in their case from the government and from parents. What has changed is the choice of goods available and the ready credit to let you do it, which WILL readily let you borrow well beyond your means. Oh, and the stupid term of building your “forever home” is new. HOWEVER, as much as I find that term ridiculous (my dislike of it comes from working in the new home sector for a number of years and hearing people justify their crazy expenditure on the fact that they would live in the house until they DIED) this couple did manage to stay in the same home for about 45 years.
How did they pay off this debt?
They had good middle income jobs and he earned… wait for it…. $40 a week and she earned $21!!!! In today’s money that is a take home pay of about $1,300 a week. With Anne in control a large chunk of this was saved each week so they could buy their section and then once they had their State Advance and lending from parents this went towards paying their loans back. When children came along though they were down to one wage while Anne gave up her work to look after her children but when her children were teenagers she was able to start work again. And of course with inflation over all those years their wages rose as well, as did the prices of everything else. C’est la vie!
They chipped away at their debt over the next 20 or so years working regular jobs that paid an average wage and as governments changed so did the banking system. As banks as we know them today evolved their debt was moved to them and they continued to pay down their mortgage. Read any personal finance blog today and there are several ‘hacks’ for how to get out of debt faster. One of these is to take on a flatmate or a boarder to help you pay off your mortgage; well these two thought of that way way back as well. One of their children remained living at home and because they were earning their own money they helped out. However they didn’t pay rent as such. The financial controller laid down the rule that if he SAVED the money he earned then he would not pay board but if he SPENT, FRITTERED and otherwise BLEW the money he earned he would be paying rent faster than he ever thought possible. He was not a complete freeloader but instead took them on a holiday to OZ and paid the final couple of thousand owing on their mortgage. Basically they gave him an excellent financial footing when after finishing his study he began his working career. I’m taking parenting tips of my own here. Keith and Anne finally became debt free aged in their early 50’s, about 28 years after taking out their loans. That is a really really really long time.
So, what next for Anne and Keith? By then Harvey Norman was open so they replaced their furniture on an annual basis and updated the tellie frequently!
The Financial Controller Anne had by that stage cast her mind 20-30 years INTO THE FUTURE and started planning for that. So, steady saving began and never stopped and before they knew it, retirement was upon them.
So what does the government superannuation scheme provide in retirement? Don’t ask Winston Peter’s because clearly he has no idea. For a married couple after tax its $600 per week. And one major change between the 1960’s and today is that ‘retirement’ as we know it is SO LAST CENTURY! Now in their seventies both of them still work part time jobs (and pay secondary tax) to supplement their superannuation payment and because of this they are yet to rely on the investments they have made over the years. They didn’t stagger towards 65 and hand in their notice on their birthday but instead continue to work because they enjoy their jobs, the people they meet and it keeps them busy and engaged. Keith STILL wins meat raffles and Anne STILL saves her allowance. Some things stay the same.
What do I take from this that I can apply to my own life?
- Consistently pay down debt and don’t take on any more.
- Go without to get ahead. A comment I received from Kurt this week hit the nail on the head, “Everyone thinks that their happiness will decline when they stop spending, when the opposite is true”
- Pay cash for everything and never borrow to buy.
- You don’t need huge incomes to retire happy. You just need to save a portion of those incomes weekly/monthly. Project forward and put a little aside today because it will add up to a lot in the future.
- Retirement is not a number. It’s not 65 or $1,000,000. It is a moving target.
- And finally, you and I don’t need to reinvent the wheel here. Conversations with my seniors give me all the information I need to make good choices today and in my future. The chances are that if I come up with a “bright idea” a.k.a “life hack” someone else has thought of it before and I would do well to listen and learn from them first instead of tying myself up in knots trying to work life out all by myself.
Happy Saving and GOOD LUCK at the meat raffle this week Keith! It’s a shame I sold the BBQ in a fit of downsizing otherwise I’d have you over for dinner!
This week I used the following websites:
Inflation Calculator: www.rbnz.govt.nz
Te Ara - The Encyclopedia of New Zealand: www.teara.govt.nz
Superannuation rates: www.sorted.org.nz