By age 75 you will need $66,000.
Perhaps it's not as bad as it sounds as many of us slow down as we get older and do less, however, it would be prudent to spend less.
But back to those who can't spend
Some people are born with the savings gene, and others learn it.
The people who are the best savers are often the same ones who have the most trouble changing over to spending their money. That's a shame, since they deserve it and no-one lives for ever.
How to overcome it
* Get independent advice
* Do the sums
* Use a retirement calculator
An example Here is an example based on a real "can't spend my savings" case.
Bill and Bet worked and saved hard for many years and invested in rental properties. Now they are retired and think they need an income of $50,000 per annum to live, plus another $15,000 per annum for visiting their children overseas.
They had four rental houses, but they never seem to have enough income and had no cash in the bank. Why not? Because all their rentals were geared with borrowings and seeking capital growth -- a typical accumulator scenario.
By the time they paid the interest and expenses, there was no rental income for them. They were still operating/thinking like savers and accumulators, but when they retired, their income stopped.
We suggested they sell three rentals, clear the debt, and keep the best one. They found that idea hard, but after a few months (of low income) they did it
That left them with $400,000 in cash and one debt-free rental.
Joint national super $28,000
Rental net of expenses and tax* $10,000
Investments of $400,000** $18,000
Total after tax $56,000
* income only -- excludes any capital gain
** a diversified portfolio at an estimated 5 per cent net return, drawing down $1500 a month
If inflation is 3 per cent, the $400,000 will last 29 years.
Fallback position
If and when the $400,000 runs out, they will still have one rental and their home. They could sell the rental anytime along the way and they could downsize their home later on.
They couldn't ... Bill and Bet want to keep all their assets intact to leave to their children (unusual these days).
That probably can't happen if they live relatively long lives. However, their children are likely to get a tidy sum and have their whole working lives in front of them to emulate their parents' good savings habits.
Diversification
By selling three rentals, they repaid all their debt and were able to diversify much more widely.
Diversified investments have other advantages, too -- bonds and shares are liquid and can be cashed in anytime.
So they can spend some and have peace of mind too
They can now have the income and lifestyle they want. They can do so without worrying as their good savings habits have put them in a strong position and they are highly unlikely to run low on money late in life.
All they needed to do was to get good independent advice, do the sums and use a retirement calculator.
Alan Clarke is a financial and retirement adviser and author. His second book, The Great NZ Work, Money & Retirement Puzzle, is available at acfs.co.nz Alan is an independent authorised financial adviser (AFA) FSP26532; his disclosure statement is available on request and is free.
