Many Kiwis lack the capital to fund the lifestyle they want in retirement.

Who hasn't heard the Beatles song When I'm Sixty-Four? When Paul McCartney and John Lennon penned this ditty in their youth, the age of 64 would have seemed a long way away. Lennon never made it.

Even for the eternally young such as Paul McCartney, retirement has a funny way of creeping up. One moment they're 30 and the next they're signing up for their Gold Card.

Sixty-five, by virtue of New Zealand Super kicking in, is seen as retirement age in this country. But that's a bit of an artificial construct, says Duncan Balmer, financial adviser at Balmer, Jeffs & Company.

Many people, such as financial planners Alison and Richard Renfrew of Lyford Asset Management, plan to work to 70 or 75.


When we do finally give up the day job there is serious planning to be done. "At that age people actually need to be asking 'how am I going to support myself for possibly another 30 years'?" says Balmer.

By retirement age everyone should have a financial plan, also known as a decumulation or spend-down plan. Leaving it too late could result in living hand-to-mouth on Work and Income benefits such as the accommodation supplement. Many of the 40 per cent of retired Kiwis who live on NZ Super alone struggle to make ends meet.

Start by doing a balance sheet of everything you own and owe, says Stephen Jonas, head of client services at Craigs Investment Partners.

The balance sheet needs to be coupled with a post-retirement budget of all living expenses. Make sure you set aside some of the capital for updating white goods over time, says Jonas. Medical bills can rise hugely as people age.

Chances are your expenses will be more than NZ Super provides and not that much less than you're spending while in full-time employment.

This isn't the full picture. A financial plan for retirement is a matrix with many variables. The salary may continue beyond 65. Then you may downsize your house at age 68, but not sell off the rental portfolio until 70, or vice versa. Your need for money will get less as you age.

Liz Koh, Moneymax financial adviser, splits life into three stages: the "live it up" stage, the "fix it up" stage and the "wind it down" stage.

In the live it up stage many people don't want to give up work. "I have talked to many retired people over the years and the majority warn me not to retire," says Renfrew. They want to feel valued.

"It's important to have a reason to get out of bed in the morning. There's more to work than work."

One big problem for many Kiwis is that there may not be enough capital to fund the lifestyle they plan. Covering the shortfall might mean working into their dotage, seriously downgrading their living expenses - probably the cause of the problem in the first place - or downsizing the house to release a small nest egg.

Tax is part of the When I'm Sixty-Four matrix. A future Government introducing capital gains tax could throw a spanner in the works, says NZICA tax general manager Peter Vial. The family home might be safe from a capital gains tax, but what about the other assets you own?"

Other matters need attending to, says Koh, such as ensuring wills are up to date, enduring powers of attorney in place and estate planning has been considered - especially if there is a second relationship involved.

Don't forget the small stuff, as well. On retirement, says Koh, retirees should check that their interest and dividends and other income are being taxed at the correct rate, as their marginal tax rate may change. That's especially the case for Pie investments such as KiwiSaver and managed funds. This can't be claimed back retrospectively.

It's a common belief in New Zealand that people will live off the interest/dividends/rents from their investments and leave the capital untouched when they retire.

The reality is that most people don't have a big enough pot of money to do this. They will need to eat into the capital over time.

If you want $5000 a year from your investments and are willing to eat into the capital over a 30-year period with interest rates at 2.5 per cent after tax, you will need just over $100,000 invested on retirement, says Koh. If you want to spend the income only you'll need more like $200,000 in capital on retirement.

Property investors are particularly bad at not wanting to sell down their assets to live, says Mark Withers, an accountant at Withers Tsang.

Withers argues that some investors would be better off selling property as they age and putting it into liquid investments rather than holding on to the bitter end.

The problem is property investors often do not trust the share market and it may be difficult for them to change the investing habits of a lifetime.

Withers cites the example of a $700,000 property returning $22,080 net of expenses, but before tax. Selling the property and investing the money at a 5.5 per cent return would bring in $38,500 a year. The investor, however, is holding on for even more capital gain.

Holding on might have an unexpected consequence. Deutsche Bank says New Zealand residential property is overvalued by 53 per cent. Should values correct there will be less capital in the pot.

What's more, says investment adviser Jack Powell at PrivateWealth Advisers, people often realise less of a gain than they expect when they downsize because they sell an old house and move to a smaller, but newer or better home in a nicer area.

There is often confusion about what to do with investments such as KiwiSaver or superannuation once people reach retirement age. Many will withdraw the money and put the whole lot into conservative investments such as term deposits.

That is a mistake Powell spends his days convincing clients not to make.

"You still have another 25 years to live," says Powell. If you want your capital to last then a portion of it must be invested in growth assets.

"The majority of people I talk to become very conservative at age 65."

Putting all their assets in "low-risk" investments can, ironically, be risky. The capital is eroded faster than it would be in a balanced portfolio that tracks slowly from growth to conservative investments.

Even so, the majority of people's investments should be moved gradually into conservative assets as they age, says Balmer.

Some investors don't realise they can leave their KiwiSaver fund invested where it is and it can continue to grow. Most providers have conservative, balanced and growth funds and as people age their money can be shifted to more conservative investments with no charge for switching.

Financial adviser Brent Sheather of Private Asset Management says a line in the sand is the fact the average pension fund for the past 30 years or so has adopted an asset allocation of about 40 per cent in bonds, 10 per cent in property and 50 per cent in shares. "You could argue that someone aged 65 should adopt a less risky investment profile than this."

Investment property is a popular way to save for retirement and like KiwiSaver it's not necessary to sell when you reach 65.

On the other hand, you'll no longer have an income to service debt and a day will come when you just can't push that Zimmer frame up to the front door of your rental property to do an inspection or fix the guttering.

There is also the rates bill, says Vial. "Being asset-rich but cash poor might be a challenge."

Property investors' inability to sell and realise capital often makes them the world's poorest millionaires, says Withers.

They sit on the property looking for more and more capital gain, but live like church mice in their retirement.

When I'm Sixty-Four calculations often leave out rest-home care, which can be the real elephant in the room financially.