Retirees have low risk tolerance but high expectations

The FMA and Commission for Financial Capability have released a new study looking at the retirement expectations and experiences of New Zealanders aged over 50.

It found most were risk-averse but still had high expectations of what their investments could deliver.

Those nearing retirement typically chose low or medium-risk investments, such as term deposits or savings accounts. That was particularly true of those who had not developed a financial plan.

But they had high expectations of their returns. Respondents generally viewed a 5% per year return as a fairly low rate, and said 9% was about medium.

Eighty per cent of the respondents said high-risk investments were something to avoid. Of those already retired, 84% said "most people" should choose lower-risk investments.

Only a quarter had completed a risk profile questionnaire. Those who had were less likely to express a strong aversion to risk.

FMA director of primary markets and investor resources Simone Robbers said the results indicated a "gut instinct" approach to retirement planning, rather than well-informed decisions.

"We can see that if people take time to make a plan, they are generally more likely to choose a more diversified range of investments. It is essential for people to find out what kind of investor they are and to diversify their investment choices appropriately. That will help their investments grow, spread risk and leave them well-placed for a better retirement."

Around four in ten retirees had entered retirement without a financial plan. Thirty-four per cent of those who had a retired with a plan had enough money to do all the things they wanted in retirement.

Of those nearing retirement, half planned to have their non-KiwiSaver savings in term deposits. Another 42% would use a savings account. Rental property was the third most popular investment vehicle. Just a quarter would use managed funds, and another quarter shares.

After retirement, slightly more were using a term deposit, 41% a savings account, 24% rental property, 29% shares and 16% a managed fund or unit trust.

Comments from our readers

On 12 August 2015 at 1:29 pm traveller said:

Interesting stuff. There was a letter in Mary Holm's Herald column a couple of weeks ago from a 70+ year old man with $1m+ invested who was complaining that advisers he had seen were too conservative and took no account of the fact that he was quite well off and understood and could handle volatility, and was already heavily in shares. They all told him that at his age, he should be invested more conservatively. So he stayed doing it himself. The trouble is too many advisers are locked into age/risk related formulae.

Retirees have low risk tolerance but high expectations

Advisers who want to encourage their clients into less conservative investment options to provide better retirement income may have a hard road ahead of them, new research indicates.

Wednesday, August 12th 2015, 6:00AM 1 Comment

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