Before & After Retirement

Planning for and after Retirement

Planning for retirement is often compared to marathon training – with both, the earlier you start your preparations the better the chance of success.

Equally, commitment every step of the way reaps the greatest rewards down the line.

Having a plan is critical to realising your goals. The plan should be one you can reset and reposition over time as your circumstances change.

The retirement savings journey often spans decades; there are broadly three stages you will go through while enjoying the present and funding your future

Stage 1: Building Wealth

At the beginning of their working life, people typically earn less and may not have much money allocated to retirement savings. More immediate financial goals such as travelling, clearing university debt, marriage and saving for a house usually take priority.
However, this stage does offer a critical and beneficial factor – TIME. By adding small amounts to their retirement investments at an early age, young adults can harness the power of compounding.

From now until age 40 there are a few things to consider:

  • You can assume more market volatility and pursue growth-orientated investment strategies with your KiwiSaver and investment portfolio;
  • You have plenty of time to ride out the ups and downs of the investment cycles;
  • Later in this stage, financial responsibilities will start racking up. There may be a mortgage to pay off and childcare and school fees;
  • However, as your career advances, your earnings should start to increase;
  • It’s important to gain a yardstick of where your current savings are in relation to your retirement goals;
  • Flesh out these goals: plan for the level of income you’ll need and the age you wish to retire.

Stage 2: Preserving and Increasing Wealth

For many people in their 40s, their income accelerates as their career advances and they can increase the contributions to their long-term savings. Unfortunately, for most people at this life stage, financial responsibilities can be a significant factor in their savings ability.

The good news – these are often peak earning years for individuals and couples, providing an opportunity for a strong push toward the retirement finish line by maxing out contributions to retirement savings plans.

As you turn 50, the focus on retirement savings should be at its sharpest and if you’re concerned that your savings pot is behind schedule, try not to panic – you still have plenty of time to make a difference.

  • As you move through this stage, many financial commitments should ease; you might be close to paying off your mortgage and your children should be less financially dependent;
  • Excess cash must be shifted into your KiwiSaver fund, perhaps start a Managed Investment Portfolio or used to pay off expensive debt.

As you approach age 65, your retirement plans should be firming up with a clear idea about the final action needed to hit your target income. This will make the decision-making process easier once you reach your retirement date.

The IDEAL situation to be in when you retire:

  • Own your home (mortgage-free), ideally a low maintenance property;
  • Have no personal debt (credit cards, long-term finance etc.) – banks rarely want to lend to unwaged customers;
  • Have at least $500,000 saved (it is possible – ask me how), especially if you are likely to live to the end of the current New Zealand life expectancy age.

Here are a few key factors to consider in your retirement plan:

  • NZ Superannuation income doesn’t pay for a lifestyle (it only covers basic living costs);
  • Paid employment opportunities for anyone over 65 are limited;
  • Retiring without savings or living longer than your money is almost certain misery;
  • KiwiSaver is great, but you’re probably contributing too little right now;
  • Retiring with expensive debt or a mortgage is going to add to your distress;
  • Reverse mortgages (AKA home equity release) can be a bad idea;
  • Getting divorced before retirement is financially devastating;
  • Mixing family and money can be problematic;
  • Retirement homes and rest homes are expensive;
  • Some things in retirement are free or discounted – utilise this benefit.

Stage 3: Living on Saved Wealth

Retirement today looks very different to the retirement experienced by our parents. You may choose to continue working rather than take a sudden shift from full-time work to full-time retirement.

The NZ Retirement Commission uses the three phases of retirement to encourage people to think about ageing well and preparing for life after retirement. These three phases serve as a structured framework, enabling individuals to gain a comprehensive understanding of, and effectively plan for, this significant life transition.

The following graph highlights the traditional straight-line approach to budgeting for expenses versus the actual more realistic U-graph your retirement expenses are more likely to follow. Many retirees fail to take this into consideration and this can add to retirement stress.

The Discovery Phase: Ages Around 65-74

You have reached retirement age and during this phase you could be still self-employed or working part time; it is important to plan your expenses and manage your savings to ensure you can enjoy this phase and continue to be comfortable in the future.

  • You may be doing all the things that you did not have time for when you worked full time, such as travelling, spending more time on your hobbies and interests, learning new skills and visiting family;
  • You are likely to be physically and mentally capable of leading an active lifestyle; this phase is dubbed as the ‘doing’ years, and may come with increased living costs as you fully explore an active retirement lifestyle;
  • Crafting a daily routine tailored to personal preferences and lifestyle becomes pivotal. Some individuals may opt for part-time employment or involve themselves in volunteer activities, while others embrace a more relaxed and leisurely pace;
  • Retirees must vigilantly oversee finances, making necessary adjustments to ensure the longevity of their savings and investments throughout their retirement. Should you start withdrawing from your savings to complement New Zealand superannuation, it becomes crucial to maintain a strategic and adaptable approach to financial and investment management.

The Middle Phase: Ages Around 75-84

This retirement phase could be a time to focus on developing new skills or perhaps a routine helping you to manage energy and maintain the activities you enjoy. A phase where you may still be pursuing hobbies and travel, but at a slower pace which will steadily reduce your expenditure.

  • This is a good time to consider downsizing your house or to find ways to reduce home maintenance;
  • You may consider releasing equity from your family home to plan for future old age expenditure.

Some unique challenges of this retirement phase:

  • Ongoing monitoring of your financial situation to ensure resources remain sufficient to maintain your preferred lifestyle and potential healthcare expenses;
  • Prudent planning to address any unforeseen financial challenges that may arise in this phase of life;
  • Adapting to changing circumstances and safeguarding future overall well-being throughout the later stages of retirement;
  • Health concerns and the aging process take centre stage, underscoring the potential need for heightened healthcare and long-term care services among retirees;
  • Strategic planning to navigate potential increased reliance on medical services and assistance; balancing health and financial well-being become paramount;
  • Preserving social connections and relationships takes on heightened significance as a preventive measure against feelings of isolation;
  • Overseas travel tends to be scaled back, the focus shifts towards local and more accessible avenues for maintaining meaningful connections.

The Reflection Phase: Age 85 Plus

In the last retirement phase, more help may be required as health and finances limit personal independence and choice. It is important to consider health and age care needs, which may require family, government and community agency support.

The cost of living in this phase will drop as you spend more time at home; however, if your health declines this could rapidly rise. Retirees in this phase may face further challenges related to aging and financial matters –

  • The potential need for assistance with daily activities, healthcare and possibly long-term care services becomes more apparent. Strategic planning for such support is imperative, whether it involves relying on family, accessing community services or considering retirement facilities;
  • During this phase, retirees often turn their attention to the strategic distribution of their assets and engage in comprehensive legacy planning. This includes careful consideration of estate planning tools such as wills, trusts, and gifting strategies; structuring your financial legacy in a way that aligns with your wishes and ensures a smooth transition of assets to your beneficiaries;
  • Reflect on your life and contemplate the legacy you desire to leave behind. Many retirees leverage the opportunity to impart not only financial resources but also wisdom and values to future generations or charitable causes; This focus extends beyond monetary considerations, encompassing a broader sense of personal and societal impact that aligns with your core beliefs and principles.

If you are interested in a free, no obligation retirement planning consultation or a free copy of my “Fourteen things to consider” Retirement Planning Checklist, you are welcome to get in touch below.

Before & After Retirement