Farmers SuperannuationSunday, Aug 12, 2001
One of the larger banks recently organised a city-hopping road show that was aimed at promoting a new
investment service it is now offering. There was a double act that involved a scant, lack lustre
talk on the service followed by a light hearted and amusing address from Steve Gurney, covering some
of his exploits as a world class endurance athlete.
Most who attended will remember Gurney, as a likable eccentric with unequalled determination to achieve
his goals. Few will understand his reasons for subjecting his body to such abuse as crawling through
swamps, abseiling down rock faces in the dark or kayaking with crocodiles, but most will remember
The investment talk stressed its service was aimed at those wanting a rock solid performance, with very
low risk for a longer term. To highlight its target market and its performance aims an example
was used. A couple in their early 60s retired from a third generation dairy farm, sold up and reaped
$1.7 million. They paid off debt, bought a house and were left with $1 million to invest. Being
conservative they wanted security rather than big returns. They set as their aim a return, after
tax, of $40,000, which the investment service achieved for them.
This all sounds conveniently comfortable until one questions the future needs of this couple or any
similar couple in their early sixties. They need to eat and clothe themselves. They probably have
a good car that needs updating occasionally. Life insurance would still be in need of payment, while
general insurance for house, contents and car would be a substantial figure.
Health insurance becomes costly in the more senior years. Rates on the new house and a little money
to renovate the home to the standard they require could also be needed. May be some travel on retirement
to exotic overseas places or just to the family in the other island should be considered.
A hobby like golf or bowls will need to fall into the budget. Put simply the $40,000 could be used quite
easily. Should an untoward event happen like the need for home care or a nursing home the money
would disappear very quickly. Possibly in one or two years the investments would not reach the
The couple in the example could fairly expect to live for another 20 years and even keep going into
the next twenty after that. Now cast your mind back 20 years and ask how prices have increased in
that period. What was a car worth then, compared to current prices? Consider each budget item that
is needed to live and ask how that has changed in twenty years. Is there any reason to believe that
prices will not keep going up in the future?
The income from the investment plan was based on the one million dollars generating a steady return.
That return will be basically static because interest rates will not increase at the same rate as
the living costs. If, in a few years time, the income is too small the capital sum or the life style
will have to be reduced.
The next question that arises is the moral obligation to keep the capital sum intact for future generations.
If there is an obligation then the basic fund has to grow, at least, in line with inflation.
The most important issue that the talk inadvertently raised was the size of the retirement fund. The
traditional $1,000,000 bandied about in the past may not be enough, and a figure twice that size
would be a much safer target to aim for.
These are times of rapid change, but is the farmers “superannuation “ keeping pace with
the realities ofthe demands of a long retirement?
Contributed by associate editor David Clegg.