HELPING KIWIS TO FLY
Useful hints, ideas and suggestions to help you get off the ground.
When should I start spending capital?
December 2021
- The Retirement Income Interest Group of the New Zealand Society of Actuaries published an article in November 2021 outlining the problems retirees face in deciding when they need to start using their capital (their investments) to top up the income they need in retirement (How to make drawndown a success).
- In the article they note:
- To draw down the capital, savers must make choices and take positive action
- The necessary choices are not easy, even with good financial capability
- The available guidance in annual KiwiSaver statements is limited
- Once in retirement, retirees have limited ability to increase their savings. In hindsight, people may wish they had drawn down less, or more
- Retirement can be long for many retirees. Over half of today’s 65-yearolds can expect another twenty years of life at least and over one in four can expect to live beyond age 90.
- Think of your money as “Buckets”. An emergency bucket (for rainy day items) and some drawdown buckets. Maybe one for operational expenses, and investment buckets (an appropriate mix of conservative or balanced investments).
- Next they advise you to plan when you need to access funds from these buckets, and to calculate the size of the buckets needed.
- They also advise that you model multiple life expectancies and scenarios: what if you live longer than average? Can I take more money out next year for travel and still have enough left in my buckets?
- They then advise that you need to review all your assumptions at least annually. A plan is not ‘set and forget’ as the underlying assumptions will change over time.
Over two years ago we wrote a step by step guide to help you create your retirement financial plan – giving you buckets of money in your retirement. If you followed our free retirement planning guide and utilised our free planning template spreadsheet, you would already know the buckets you need for retirement, the size of each bucket, and when you need to access the capital within each bucket. You will know exactly when you need to start spending your capital. You can also adjust the key assumptions and see what impacts they may have on your retirement (life expectancy, annual living costs, rate of inflation, investment returns etc.). You already have taken control of your retirement. You can do ‘what if’ scenario planning and immediately see if you will have a problem, or can spend more now .. and still have enough left in the buckets for later. You have modelled the common “phases of retirement” so you know when you need access to funds, determined when you are likely to incur additional health costs, retirement accommodation costs, or even funeral costs.
They say “The problem of how to draw down from KiwiSaver or other retirement savings is a new one for many retirees in New Zealand. It is a difficult problem to solve as it involves risks and uncertainties. The key questions are how much to take out, how fast the fund runs down and when it runs out.”
If you havn’t already downloaded and followed our free planning guide, you probably also have these questions. Complete the easy step by step guide, and you too will have the answer to these key questions.
You can obtain your copy of our free retirement planning guide from our Downloads page.Common retirement mistakes
November 2021
- A recent Stuff article (https://www.stuff.co.nz/life-style/homed/retirement/300417981 ) quoted Liz Koh:
- “Retirement should be the best stage of life – a time when you can enjoy life to the max, free of worry. However, many retirees make mistakes with managing their money which mean they aren’t able to achieve the kind of retirement they deserve.”
- She then went on to list the five common key mistakes people make:
- 1. Failure to Plan
- 2. Too much money in property
- 3. Investing too conservatively
- 4. Living off investment income and not capital
- 5. Underspending
- She must have read our free guide on retirement planning as we identify the same topics. But not only do we identify these common mistakes (and many others), we also explain how to avoid and resolve them.
- Our free guide has been written by Kiwis for Kiwis. It contains no sales gimmicks, product endorsements, and the authors have received no sponsorships. It presents the details using a real kiwi case study, with real life experiences and numbers.
- It has been written to help educate you through the financial maze of retirement planning. If you follow the simple steps in the guide, you will create your own comprehensive retirement plan.
- It will help you understand how to build a diversified portfolio of investments, with risks and returns aligned with when you actually need to access your money, rather than thinking it is all needed on your 65th birthday.
- It will show you how to plan (when) to release your capital to maintain your desired lifestyle for longer.
- And it will help you prioritize your wants and your needs, so you can enjoy spending for longer. With the confidence you and your partner won’t run out of money before you both ‘run out of life’.
- And the good thing is this guide is free, will help raise your financial literacy, and will let you do all this yourself. Download your free guide today and start planning the retire you deserve. You can obtain your copy of our free retirement planning guide from our Downloads page.
2021
Planning for your future
A recent Stuff article (https://www.stuff.co.nz/business/money/126459826) quoted Hannah McQueen:“Retirees often think that the only acceptable thing to do with their savings is to keep it in a term deposit or a savings account. But most people tend to be retired for a long time, so you can phase your retirement into chunks and invest the money that you don’t need for the next 10 years or more in higher risk/return assets. You just need to have a good handle on your cashflow requirements – and most people don’t.” If you are scared about retirement, investing in or investing for your retirement, have no idea how you split your retirement into ‘bite sized chunks’, or you don’t yet understand the cash needed in retirement or you cashflow needs, then you definitely need to read our free guide and get your retirement sorted. With current term deposits (< three years) all providing returns of under 2%, while inflation is running at 3.3% (before you’re even taxed!), you are worse off and going backwards. Without understanding how to manage the risks when investing to obtain higher returns, you are not only risking your money and assets, but also the quality of your retirement. You need to increase your financial literacy now – so you can have the quality of retirement you want and deserve. Our free guide has been written by Kiwis for Kiwis. It has been written to help educate you through the financial maze of retirement planning. You can obtain your copy of our free retirement planning guide from our Downloads page.2021
We need more than ever
The latest report from Massey’s NZ Fin-Ed Centre shows that the gap between the $’s people need in retirement vs. what Superannuation provides, is getting wider. The shine is disappearing from the golden years of retirement as living costs keep on getting more expensive.
The Massey annual report suggests in some cases the cost of retirement has decreased, but drilling into the numbers, they indicate that this is not through a ‘reduction in costs’, it is a result of a ‘reduction in lifestyle’ as retirees have had to forgo some expenses as they can no longer afford the lifestyle they previously enjoyed. They also indicate that more people are now ‘working in retirement’ (basically ‘working beyond the age of 65’ .. because if you are still working you are not retired!) to make ends meet.
Is this the type of retirement you want? Working past 65, and giving up things you currently enjoy just to get by? Add to this the fact that New Zealanders are living longer, means that you need a lot more savings just to survive retirement, than your parents did. If you don’t have a plan yet for your retirement then this could be you. How to reduce these issues are covered in our free retirement planning guide, and if you follow the simple steps, you will develop your own comprehensive retirement plan and increase your financial literacy. A little bit of planning now – may avoid the need to ‘go without’ in the future.How financially literate are we?
July 2021
During 2020, the Commission for Financial Capability (“CFFC”) conducted a survey to measure the financial knowledge of over 3,000 New Zealanders.While they demonstrated a good understanding of inflation, interest and risk and return, they struggled understanding compound interest, risk diversification and the time value of money. They found: “The results indicate that the areas to be addressed as a priority are the understanding of simple and compound interest and time value of money. In these areas, the gap between younger and older people, women and men and Māori and Pacific Peoples and Europeans is most pronounced.Understanding of simple and compound interest is particularly important for consumers choosing and using savings and credit products. When choosing credit products, sub-optimal choices can increase the risk of financial hardship or exacerbate existing financial hardship.” They then go on to suggest: “Young people should be the priority for increasing the understanding of compound interest because they can reap the greatest benefits from compounding interest on savings or investments over a long period of time.”
If you are one of the people that don’t understand the financial concepts of compound interest, risk diversification and how time impacts the value of your money, then you need to download our free guide now, and learn about these topics. If you are planning for your retirement, you are clearly not in the priority group that will be helped in these areas. You will need to upskill yourself. They then conclude: “In the current low-interest rate environment where many may look for alternatives to term deposits, understanding risk diversification is important.” All these areas are covered in the free guide, and if you follow the simple steps, you will develop your own comprehensive retirement plan while increasing your financial literacy.2021
Can you afford to live longer?
Recent statistics from Statistics New Zealand show that New Zealanders are living longer. Life expectancy has improved significantly since the mid-20th century. In 1950-52 it was 71.3 years for females and 67.2 years for males. Based on 2017 – 2019 data, average life expectancy for males was 81 and 84.5 for females.
Have you checked your Retirement Plan to ensure you have enough money to match your life expectancy?
A good retirement plan should have:- a contingency in case one or both of you live longer than expected,
- allowance for unexpected health events along the way,
- factored in the costs of accommodation and care in the later stages of life,
- considered the costs of funerals.
Through careful planning now, the financial impact of these events can be significantly reduced. This in turn will reduce stress in later life, not only for yourselves but for your family. And reduced stress in later life may mean we live even longer.
Many of these life events will happen, we just don’t know the when. That doesn’t mean we shouldn’t plan for them to ensure we can continue to meet our lifestyle goals and aspirations.2021
Do you own your own home?
From 1986 to 2013, New Zealand saw a 44 per cent growth in renting among those aged 65 and older. By 2013, almost 19 per cent of that age group – or roughly 97,000 retirees – lived in rented accommodation.
Home-ownership data from the 2018 Census found that leading up to superannuation age (60 to 64 years), about 1 in 4 people (almost 25%) did not own the home they lived in.
New Zealand Superannuation was not designed for those living in rental accommodation. When established, it assumed people would own their own home, and for the few that didn’t, rents were not at the level they are today. Where you live, and how you will live, are key concerns in retirement and should be planned well in advance. If you don’t own your own home and have concerns about how you will survive retirement then you need to start planning and evaluating your options now. With a little financial literacy you can evaluate options and make informed decisions (rather than emotional decisions) that may have a major impact on the quality of your retirement.
Our free retirement planning guide can assist you with your planning, and can help guide you through the evaluation of your options. Download it today to get started.