We spend a lot of time thinking about all the fun, relaxing things we’re going to do when we retire, but not as much time figuring out how to make the transition.
Unfortunately, the retirement puzzle is about so much more than just kicking back and spending more time doing what we want to do. You need to consider:
- finishing up your career or going part time;
- when and how to sell your business/farm;
- organising your NZ pension;
- updating your will and Power of Attorney;
- investing your hard-earned wealth to generate a lifelong income;
- selling your house and finding the new perfect place to call home – whether that’s moving to a lifestyle estate or simply downsizing your family home.
Many of us will retire at the age of 65 when New Zealand Superannuation (NZ Super) payments kick in and we start reaping the financial rewards for all those years of paying taxes. Although NZ Super is a major source of income for all Kiwi retirees, individual KiwiSaver investments are steadily growing as a good source of revenue for Kiwi Retirees.
However, there’s nothing stopping you from handing in your notice at work at a younger age, or even continuing to work while semi-retired. For many, shifting gears from a lifetime of working nine-to-five to full retirement is a huge shock to the system. It can leave us feeling rudderless, and it can take a lot of adjusting to having so much free time. Fortunately, some employers will allow you to reduce your hours if you’re close to retirement age. This offers a great balance of still working and earning, but no longer putting all your time into work.
Other retirees will step away from their career and take up a part-time position in a less stressful role or spend time volunteering. These options feel less like a race car slamming on its brakes and more like a cruise liner slowly gliding into port. Whether you’re crossing off the days on your retirement calendar or plan on turning up at work until your boss won’t have you anymore, this is the time to think about your finances for the upcoming years.
There is always the question and uncertainty around how much – how much income will you need after retirement and how much should be in your savings pot. There is no set number of how much you need in your savings before you can retire, it depends on a variety of factors such as:
- the kind of lifestyle you want;
- whether you own the home you’ll live in or are still renting or making mortgage repayments;
- what age you retire;
- will you be traveling overseas?
A recent Massey University study reveals that most retirees and pre-retirees believe the NZ Super is not enough on its own to fund retirement. The survey found that a single person living in a metro area would need $781 per week for a no-frills budget, and $1107 for a “choices” budget. Couples would be looking at a no-frills budget of $931 per week, or a “choices” budget of $1578 per week.
These figures are quite out of reach in terms of current NZ Super payments and for some, this means continuing to work in retirement. For others, this means relying on both their KiwiSaver and/or their long-term savings to fill the gaps.
The majority of retirees are mortgage-free by the time they retire, according to Massey, which is no easy feat, but something to aim for. But after retirement you face a decision about what to do with one of your biggest assets now you don’t necessarily need to stay in the same location for work reasons. Do you become a nomad like the millennials or stay put so you don’t confuse the pets? Here are a few questions you need to consider to help you plan:
- Will you be traveling a lot? A lock up and go will then be ideal.?
- Do you need to free up home equity to fund your retirement?
- Do you need to stay put for family or other reasons?
- Is your current home surplus to requirements in terms of space?
- Is your current home suited for ageing bodies? (Stairs are less kind on knees with every passing year)
- Would you prefer to be closer to the city centre, or farther away?
- Do you want to spend more time in a garden, or less?
- Do you expect a lot of visitors and therefore need a spare room?
- Does the idea of a retirement village appeal?
- Do you plan to spend retirement years relaxing at home, or mostly out and about?
By the time you retire, you’ll be accustomed to reality of being an adult – there’s paperwork to do practically every time you sneeze. Taking the time to review your insurance is important at this stage as your preferences and needs often change over time, and all insurance plans should be up to date and relevant.
Most retirees have no debt and limited cashflow, so it is very important to adjust your risk premiums and risk cover to fit your budget and needs. Do you really need life cover if you don’t have a mortgage plus say $500k cash in the bank? It is important to have peace of mind knowing your family will be taken care of, but expensive risk premiums can eat into your retirement income preventing you to fully enjoy your retirement years.
Lasty, how to invest that surplus cash to generate a lifestyle income that will last longer than you?
This is a tough question and difficult but not impossible to plan for. Based on the past 30-year performance of a diversified balanced investment strategy, investors have received an average return of 8.8% per annum gross. This was from 1992 up to 2022 but it is important to bear in mind this is an indication of what to expect from such a strategy, not a guarantee. Most conservative New Zealand wealth managers project a 10-year return of around 5.6% per annum and that should be used as a guideline to plan your long-term income needs.
Determining what to do is a bigger decision than most might initially realise. Fortunately, it’s not one you need to make right away, and you can change your plans at any time as your goals, needs and objectives change.
I’m here to help. If you need some guidance with your retirement planning, please get in touch. It’s what we do, and we love doing it.
