Rethink on retirement needed
cash flow and income. If you need cash, you don’t need to limit yourself to living on your investment income while leaving your capital intact.
Annuities pay out your capital as well as income over your lifetime. You can run your own investment portfolio in exactly the same way, although it won’t have the benefit of the longevity insurance that comes with an annuity.
It is simply a matter of setting up a regular withdrawal from your investment portfolio aimed at running down your capital over your estimated lifespan.
There are several ways you can calculate this. You can take out a fixed amount for the rest of your life; you can take a fixed, increasing, or decreasing percentage of the balance, or each year you can take out an amount which is the balance divided by the number of estimated remaining years of your life.
You will need to decide whether you want to spend your money evenly over your retirement, or spend more upfront and less later, or less upfront and more later.
This is a matter of personal choice and what your spending patterns are likely to be.
Liquidity, or easy access to cash at the time when you need it, is a key consideration in funding your retirement. Kiwis are avid property investors, and property is a great way to grow your wealth as you head towards retirement. However, it works less well as a way of funding your retirement. That’s because your investment capital is not accessible until the property is sold.
You may need other, more liquid investments to supplement the income from your property for shorter-term spending.
Investing for a longer timeframe will usually reward you with a greater investment return, but with the risk of loss or reduced return if you need money sooner than expected. A combination of short, medium and long-term investments helps to achieve a good return while still having access to cash when you need it.
One of the best ways to fund your retirement is to keep working past the age of 65, and that’s the situation for around 40 per cent of people aged between 65 and 69 and 20 per cent of people aged 70 to 74.
Working does not affect your eligibility for NZ Superannuation once you have turned 65, so make the most of the opportunity to build up your savings before you sit back and enjoy a well-earned retirement.
Liz Koh is an authorised financial adviser and author of Your Money Personality: Unlock the Secret to a Rich and Happy Life, Awa Press. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free of charge by calling 0800 273 847.