Retirement Planning

Considered retirement investment planning will ensure you enjoy your 25-year holiday

Rather Than Planning Your Retirement, Plan Your 25-Year Holiday Instead!

This new adventure is the reason you’ve been saving all these years, and now you’re wondering what retirement lifestyle you can afford, and how to best go about it. You may also be wondering how you’ll make your funds last.

Whether you’ve just retired or are still five to ten years away, you’re at a critical time.

A thorough plan for how your how finances and investments will work throughout retirement will ensure you can enjoy the 25-year holiday you've worked so hard for.

Times Have Changed, Including Retirement Investment Plans

Recent events have increased the pace of change in many areas – new technologies have been adopted (for instance, videocalls and artificial intelligence (AI)). Some industries are becoming obsolete sooner than expected, while new industries are emerging.

Changes are impacting retirement income planning too. In years gone by, retirees could simply hold their hard-earned nest egg in bank savings accounts and term deposits. Their reward was a healthy income in the form of regular interest payments. Interest rates lower than historical averages have changed this dynamic, and most commentators and economists believe this feature of the modern world is here to stay.

Goalsetting for Your Retirement Investment Plan

For most people, the goal is simple – to live comfortably through retirement. It’s also important to consider the details which surround this, including:

When would you like to retire?
What do you look forward to the most?
What income sources are available?
What is your life expectancy? Of course, nobody knows this for sure, but you can estimate based on your health and longevity trends in your family.
What retirement lifestyle do you want?
What monthly income will you need during retirement to maintain your current lifestyle?
How many years do you have left to save and invest?
How will you spend your time in retirement?
Did you want to leave anything behind?

As you work through these goals and questions, try to put the answers in writing. As you create your written plan, try to focus on the things you can control, such as how much to save and where to invest it.

New Zealand Superannuation, Key to Retirement Cashflow Planning

New Zealand Superannuation (often just called "the pension" or "super") is a pension paid by the government to most New Zealand residents from age 65.

Under the current law, any eligible New Zealander receives New Zealand Super regardless of how much they earn through paid work of any kind, what investments and savings they have, what other assets they own, or the taxes they have paid.

Retirement Investment Planning For Future Retirees

For those of younger ages, planning for retirement is an often-overlooked area. In years gone by, employer or government pensions could also be relied upon to provide additional retirement income. Turning to the future, factors such as increasing lifespans, the ageing New Zealand population, and the ballooning cost of New Zealand Super (if it remains unchanged in its current form) all drive a need for a lot more preparation to go into retirement planning than has been the case for most New Zealanders.

Like most things in life, a bit of planning in advance will better prepare you for achieving your own retirement goals. While it's never too late to start or to make changes to your approach, the earlier you start the better your chances of achieving the retirement lifestyle you desire. As they say, forewarned is forearmed!

KiwiSaver alone is unlikely to be enough to prepare you for retirement.

You can use your retirement goals as a guide to determine if you are saving enough. If your planned retirement age is more than ten years away, it’s okay to simply target a percentage of your current income as a retirement goal. A variety of retirement income calculators and estimator tools are available to help you figure out if your retirement plan is on the right path, or if there’s a shortfall. Just remember that if your results aren't exactly as you planned there are steps you can take to improve your outlook. The outcome is to have an awareness of where you currently stand. It's also a good idea to run a retirement estimate at least once per year.

Review How Your Funds Are Currently Invested

You're not going to get much further with your retirement investment plan if you put all your funds into a savings account, term deposit or other "safe" place, than you would if you buried your money in the ground or hid your cash under a mattress. In fact, these supposedly “safe” options are subject to a significant risk known as inflation - which will put a major drag on the purchasing power of a dollar over time. In other words, after taxes are paid on your investment earnings, you'll be able to buy less with your money when you retire than you can today.

How you choose to allocate your assets across different investments can significantly impact your ability to reach your retirement goals. You need to do some self-assessment to determine which asset allocation works best for your particular situation. For example, you could start by assessing your investor risk tolerance, which provides a guideline of how much risk and return you are prepared to take to achieve your retirement investment goals. You can compare your current allocation of investment assets with asset allocation models consistent with your risk tolerance and time horizon.

Then, you will want to determine if you prefer a "hands-on" or a more "hands-off" approach to investing. Hands-off (or indirect) retirement investors may prefer the ease and convenience of diversified managed funds and pre-mixed investment portfolios with set asset allocations. Opposingly, hands-on (or direct) investors may prefer active investments such as property investment and directly investing in shares and bonds.

Create an Investment Plan You Can Easily Follow

Saving for retirement isn’t a one-time event, it’s a lifelong process of creating good habits. The more you can do to simplify your retirement plan the easier it will be to stay on the right course.

You can do this yourself, or book a complimentary and no-obligation initial consultation with one of our professionals to help you get started.

Retire and Live from Savings, Assets, and Investments

Currently, as New Zealand Super pays only a modest sum (which is also taxed) it is advisable to live on income from savings and investments in addition to New Zealand Super. This typically means investing so that funds generate passive income, while also spending most or all the funds you have accumulated - as ‘you can’t take it with you’.

There are many ways this can be achieved and via many combinations – which means anyone who is retiring has plenty of choices to make. Regrettably, the stakes are high, as you won’t have the chance to draw-down your funds more than once. This means it is hard to recover any funds or build them up again if something goes wrong.

Just to complicate matters, most people don’t spend consistently throughout retirement. Retirement is often broken into three distinct phases with different outgoing needs:

Early - From Ages 65-74

This period will involve spending more as you tick items off the ‘bucket list’ such as travel and outdoor activities. This phase could still include paid or unpaid work (such as for a charity). For some retirees, they are busier during this phase than they were before retirement! Careful financial planning means you’re more likely to enjoy everything you want in your early retirement years while also safeguarding your future income.

Middle - From Ages 75-84

Typically, this is when spending will drop as you settle into a simple lifestyle. The need to travel, or just the hassle now of doing so, is less exciting and your focus will likely be on more simple things in life. Getting the family to come and visit you becomes more appealing and downsizing the house to move to something smaller with less maintenance also appeals to many. Sometimes, your body is telling you to slow down a little. That said, maintaining regular activity is also important, though you might just need to slow it down a little by now! The slower pace of life at this phase usually means reduced costs. Ideally in this stage, health-care costs have been accounted-for because sometimes health issues prompt unexpected spending on healthcare.

Late - From Age 85 Onward

At this phase of retirement, chances are you’ve done what you have wanted and are now spending more time taking it easy. There is often a transition to managing your own personal circumstances, which can be dominated by managing your health and well-being. Over this phase, medical and care expenses can increase. Cognitive decline is likely in some form, and health care planning is needed, along with support to manage any assets and investments you may have to help meet these costs. Being aware that costs can increase in this late stage of life means holding some of your resources back for use during these years.

Simplify Your Retirement Investments

Suppose you and your spouse are among the generation of baby boomers who have just transitioned into retirement (or you will be soon). In that case, you probably do so without the generous workplace pensions that previous generations enjoyed. This means you'll have to cobble together savings and investments from a various sources, often including multiple superannuation and KiwiSaver Schemes. To extract a retirement income from these sources, meet other goals such as pass some wealth to the next generation, and cater for your own long-term care will be a challenging process for most.

Do You Face Big Retirement Choices?

If you're facing decisions about retirement, contact us for an initial complimentary chat to see if we can help. Our team can guide you to the best solutions to sustain your retirement income.

Could You Benefit from Expert Retirement Planning Advice?

Even though everyone’s vision of retirement is different, anyone can successfully invest for it by following a few basic steps. Even if you've been investing successfully for decades, consider whether you might benefit from advice when you develop your retirement plan. During your retirement planning, and again when you implement the plan, you'll make some very important decisions that could make or break your retirement lifestyle.

How to Retire

If you’re confident you can handle retirement investment and cashflow planning on your own, we suggest you work through the topics below:

Calculations. Calculate when you can realistically retire. Running some simple calculations will give you a good idea about where you stand – just remember to include taxes and adjust the figures each year for a reasonable rate of inflation.
Medical. Cater for rising medical costs. Many of your day-to-day expenses in retirement will remain the same. One expense you'll have to increase is your medical insurance or self-insurance (setting aside funds just in case).
Assistance. Understand New Zealand Superannuation and other benefits. This will reduce the amount you need from other sources.
Debt. If you’re retiring before all your debt is repaid, such as a mortgage, make sure you understand all the implications and have a clear plan to pay it off.
Stay on track. Natural changes in life mean that your plan will need adjustment. If you’re not retired yet, make sure you're doing everything you can to set yourself up for success.

What Is Your Next Retirement Planning Step?

Our advisers span the country to assist New Zealanders just like you. To book a complimentary, obligation-free consultation with one of our professionals, leave your details and enquiry below. We'll respond within one weekday.

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