Saving for retirement
Written by Ruby Harfield, previously published in +Plus Magazine
People are living longer and, ideally, spending at least 25 years in retirement so it’s important to make sure they have enough money.
Statistics New Zealand states that, on average, 80 percent of 65-year-old men can now expect to live until they are 90 and 65-year-old women until they are 94.
Mint Asset Management head of sales and marketing, David Boyle, said people over 50 who have not started saving for retirement need to start now.
“Don’t wait another day. It sounds flippant I know, however in my view it is never too late to start preparing.”
When it comes to how much people need to have for retirement it is different for each person, Boyle said.
“There are no easy answers to these next chapters in our lives, but the sooner you start the easier it is.
“Everyone will have a different road to take and for many the road is much longer now than it has ever been before.
“We are living longer and that’s great but it does create a host of challenges that other generations before us didn’t have to contend with.”
People need to consider where they want to live, holidays, supporting wider family members, interests and life expectancy. Massey University has recently updated its guidelines on how much someone might need during retirement.
A couple who wanted a comfortable lifestyle in a city would need about $809,000 to get to the age of 90.
A good way to work out how to save for retirement is to develop three investment buckets, Boyle said.
“The first is your three to five year bucket. Ideally, these funds would be used to top up your retirement income. So they need to be pretty safe, accessible and able to provide regular payments to your bank account.”
Bank term deposits or a Diversified Income Fund could be options to investigate, Boyle said.
“The second bucket is for five to ten years. Ideally, this is money that you will use to fill up the first bucket but you will be able to take a little more risk because of the time you have before needing to draw down the capital.
“So perhaps a diversified fund that has a higher weighting to growth stocks like shares and property could be a good place to start.” The third bucket is something more long term for at least 10 to 20 years.
“Here you can take further risk (for a greater long term reward) to help maintain the buying power of your money when you really need it.
“This could include some property you might already have or developing a growth portfolio that meets your personal circumstances.
“There are so many quality investment options in the regulated market and this is where a little advice would go a long way.” Boyle recommends being wary of investments offering guaranteed double-digit returns.
“Many are property syndications and have a range of risks you need to be mindful of. “If it sounds too good to be true it probably is.”
Having a chat with an adviser or talking to companies that offer investment solutions is a great place to start working out what you need to do.
A growing number of New Zealanders are nearing retirement but not near their savings goals – especially as people are taking on more debt to get into home ownership, Boyle said.
“I suspect more Kiwis will have a mortgage when they reach the age of 65 so this does create a real challenge when preparing for a life after paid income and work.”
On a positive note properties have grown significantly in value over the past five years so releasing some of that capital could be a good start, he said.
“The first thing is to decide if you can, or want to, work longer. “The great benefit of working longer is that you are not spending your savings, which means all going well, you will have more money to spend later for longer.”
Working longer will help people get rid of debt and save enough money to build up a small nest egg.
Once people turn 65 they start receiving the New Zealand Superannuation so could, if still working, invest these payments or use it to retire debt, Boyle said.
“If working past the age of 65 is not possible then things do become a little more challenging.
“Downsize your house and invest the difference.
“If the difference is not that great you could sell your house and move to a smaller town or city that is cheaper.”
Sorted, which offers free financial advice, recommends using savings and investments on top of pensions to make retirement more comfortable and enjoyable.
Being mortgage-free by retirement is a great goal to aim for, it states.
“The reason many people currently in retirement are able to manage financially is because they no longer have the burden of mortgage repayments.”
The organisation has a retirement calculator to work out how much you will need to save based on what you currently spend– this can be found at www.sorted.org.nz.
The calculator includes figures based on a basic lifestyle or one with some more luxuries.
David Boyle’s retirement savings tips:
• Work out a budget.
• Review your KiwiSaver.
• Get a plan completed by a financial adviser.