If ever there was a word that needed to be retired, it's retirement.
What kind of mental picture does this word invoke up for you? Is it sunny beaches and no longer having to set an alarm clock? Or a stressful feeling about how much longer you will need to work to afford such a lifestyle?
Just as our working lives have changed immeasurably over the decades, so has our concept of retirement – not to mention how our long-term savings and investments are structured.
The new retirement landscape with increased longevity demands a fresh approach to thinking about and planning for your golden years. It's important to estimate how much money you will want for a comfortable retirement and where that money will come from.
Once retired, investing can be a good way to continue to grow your wealth or produce a regular income. However, it is also important to understand the risks of investing while considering how much money you need to maintain your preferred standard of living.
We're all living longer, and your savings have to last for many years to come. After retirement, no longer having a regular income can be a concern. But after a lifetime of working and saving, retirement should be a time to enjoy – without having to worry about reducing your everyday spending or making your money last.
Whether you want to receive an income from your investments or are looking to invest for your family's future, everyone has different financial goals and expectations of what their retirement will hold.
So it's important not only to assess your financial situation regularly throughout retirement but to review your saving and investments, if your circumstances or financial goals change, to ensure that they are always working in your best interests.
With so many factors to consider, here is a quick run-down of some key retirement topics you might want to think about.
How much money are you going to spend?
In order to effectively prepare, it's important to first consider how much money you'll need each year during your retirement. There are several approaches out there to determine this amount, but at the end of the day, the dollar figure you think you can get by on in retirement is a personal choice. To help predict what this amount we've outlined a few tips below:
For a quick approach, experts estimate that you'll likely need 80 per cent of your pre-retirement income if you wish to maintain a similar but more modest living standard in your retirement. Of course, you have to consider inflation, too.
Remember to consider where your retirement income will come from. For example, if you determine that your target retirement income is $85,000 per year and that $35,000 will come from NZ Super based on the current rates (Of course, you will need to have faith in NZ Super that it will be available when you retire, as it is today), the other $48,000 must be accounted for elsewhere — either from investments, your KiwiSaver, and/or other sources.
And consider the great unknowns. The Prime Minister was recently quoted as saying there is no plan to increase the superannuation age beyond 65 years and that New Zealand is different to many other countries, as we can keep working and get the pension. But policies change, Prime Ministers change and it's hard to know what the future holds for the NZ Super.
Tax-efficient retirement solutions
After retiring, many choose to give some of their money to children, grandchildren, or to charity. If this is something you are considering, your financial circumstances should be assessed first to determine how much you can afford to gift.
Also, to secure financial wellbeing in retirement, people should consider reviewing their existing insurance policies, trust establishment and structured investment strategies that will allow taking advantage of available tax relief.
Ensuring that your will is up-to-date and reflects your current wishes is also crucial to this process, not only to make sure that matters are dealt with tax-efficiently, but to also ensure that your wishes are carried out.
How can you optimise your investments?
The need for investment management doesn't end upon retirement. In many ways, it's a new beginning. If you worked closely with a financial adviser during your working years to save for retirement, continue to work with one going forward.
There's no one-size-fits-all approach to optimising your investments but managing your investments for retirement can be broken down into three primary objectives – liquidity, growth and income. Diversification provides the protection and ensures that all your objectives are met no matter what happens with the markets.
The best approach is determined by sitting down with a financial adviser who can analyse your situation and present appropriate options for your consideration as a part of your wealth management strategy.
Nick Stewart is an Authorised Financial Advisers and CEO at Stewart Group, a Hawke's Bay-based CEFEX certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver solutions.
The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz