Looking after your own interest

Last Monday, Bill English announced that he is looking to raise the retirement age from 65 to 67 by 2040. This means that anyone under the age of 45 will be looking to work an extra 2 years into their old age before they’re able to get a pension.

The change is largely driven by the cost of the current superannuation scheme, based on the stats people are living longer and these expenses are getting too high for the government to cover. (The cost is expected to rise from 5% of GDP (Gross domestic product) to 8.4% by the time I’m 60 years old).

Anyone that is over 45 today won’t be impacted — which is a huge sigh of relief for people who are in the later stages of their life and plan to rely on the pension. But, what about the rest of the population?

It takes time

The reason for the phased approach is to give people enough time to prepare. This isn’t just the kind of change you can drop on people. It takes time to grow your wealth. This is why we’re recommended different Kiwisaver funds at different life stages.

Why?

The sooner you start investing (even a little amount) the more this nest egg will be worth in the future. This is because of compound interest — you’re making interest on your interest.

What can we do about it

The fear is that this is just the beginning of the superannuation and retirement discussion for the millennial generation. We’ve started to rely less and less on the security of a pension to cover our old age, just like we’ve given up on the dream of being able to own our own homes.

This is why it’s important to take our financial future into our own hands. And make sure we’re looking after our own interest.

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