Retirement does not remove unforeseen costs, it simply changes how people must prepare for them.

In retirement the ability to “replace” an emergency fund disappears. Once you’ve clocked out from work for the last time, strategic planning is needed to ensure investments last through retirement and unexpected costs.

The one-off expenses retirees face are often significant, including home repairs, health issues, helping family, replacing vehicles, and aged care needs. “It’s not about expecting things to go wrong,” says AMP retirement coach Debbie Place. “It’s being prepared when life changes. Planning helps reduce financial stress.”

“When we’re working, we’d ideally be building towards about three to six months’ worth of expenses and call it emergency savings,” says Place. “But when it’s retirement, we can’t replace that emergency fund from income.” AMP generally recommends that retirees maintain 12 months’ worth of expenses in cash funds or the equivalent, depending on individual circumstances.

Part of a broader plan

An accessible emergency fund is vital and must be part of a wider retirement strategy, balancing immediate needs with long-term growth, says Place. Keeping everything in cash may reduce long-term growth potential, while keeping everything invested can expose retirees to the risk of selling during a market downturn.

It’s a “confidence tool”, says Place. It allows retirees to handle a hole in the roof or four new tyres without going into debt or accessing managed funds when investment markets are down. This also prevents “knee-jerk” emotional reactions to market news, ensuring retirees don’t lock in losses by selling units when prices are down.

Identifying the “deficit” and “sense-checking” expenses

Through AMP’s retirement coaching service, Place and her team help people nearing or in retirement sense-check their plans and make the most of the savings they’ve spent years building.

A typical conversation starts by understanding personal circumstances rather than applying a one-size-fits-all formula. “It depends on your expenses, lifestyle, day-to-day spending, hobbies, travel and family commitments.”

She starts with “sense-checking” expenses and creating a 10-year cash flow forecast. The first step is a thorough understanding of the client’s spending. The AMP coach works with the client to fill in a detailed expenses form, which covers everything from food and subscriptions to hobbies.

Place often finds that people may not be fully aware of their own spending habits, and have a surplus on paper that doesn’t exist in reality. “I’ll say, ‘right, this means you have this left over every fortnight,’ and sometimes they’ll go: ‘Oh, actually, I don’t’.” Costs such as vet bills, dog food, or hobbies are sometimes forgotten.

The goal is to identify the “deficit”. The gap between guaranteed income such as NZ Super and actual lifestyle costs. For example, if a couple receives about $44,000 from NZ Super but spends $60,000, that $16,000 difference must be strategically drawn from their savings.

A real-world application

Place recently worked with a mortgage-free client living alone. Together they established that a year’s worth of emergency savings would be $40,000. The client had $30,000 set aside, expecting annual and retirement leave payouts to top it up. By identifying other buffers, including term deposits, Place helped the client understand how those funds could grow if invested appropriately while balancing immediate needs with longer-term savings goals.

The three-bucket strategy: balancing access and growth

Once a person’s financial position and deficits are understood, Place will often use a three-bucket approach to structure investments according to when the money is likely to be needed.

• Bucket 1: supplements your NZ Super to cover short-term spending. This is cash set aside for immediate needs and is protected from market movements. “You can wake up and think, ‘what’s going on in the news?’” says Place. “But it’s not going to affect the money you have set aside in your cash fund.”
• Bucket 2: covers spending that is still several years away. This money is invested more conservatively than long-term savings, with a focus on preserving capital while achieving modest growth. Over time, it can be used to replenish Bucket 1 and help fund future travel, larger purchases, or other lifestyle expenses during retirement.
• Bucket 3: is designed for long-term growth. People can spend decades in retirement, so this bucket is invested in more growth-oriented investments to help money continue growing until it is needed later in life.

This structure ensures clients are not accessing funds “willy-nilly,” and acknowledges that market volatility is a “when, and not an if”, Place says. An emergency fund sits alongside these buckets rather than inside them.

Insurance and retirement planning

Place often finds that retirees are still paying for cover they needed when they had a mortgage or children at home. “You could save money with a review at that point,” she says.

“My question to clients is, ‘have you reviewed your insurance’? Is the level of cover still appropriate? Are premiums affordable?”.

Health insurance can become more important, but it’s worth reviewing carefully, particularly later in life when changing providers may result in different terms, conditions or exclusions. Before changing anything, options available under the existing policy should be explored. In some cases, adjustments such as changing the excess or reviewing the level of cover may help make premiums more affordable while still meeting their needs.

The role of holistic coaching

AMP’s retirement coaching service is distinct from traditional financial advice. While a financial advisor might look at insurances or investments, a coach looks at the whole financial life of a client, including their spending, savings and lifestyle goals.

The service typically involves two calls: the first to understand the customer’s overall financial position and retirement goals, and the second to “tweak” their plan after they’ve had time to review it.

Plans that evolve

A retirement plan is not a static document. AMP’s retirement coaches advocate for regular check-ins because life is “ever-changing”. Health, family circumstances, housing needs, lifestyle priorities, and markets can all change. Regular reviews ensure that your “buckets” remain filled correctly, giving you the freedom to enjoy your retirement without the shadow of financial stress.

This article is intended to provide general information only and does not take into account your objectives, financial situation or needs. Before taking any action, we strongly recommend you speak to a financial adviser. If you don’t have an adviser, contact AMP on 0800 267 5494 or visit amp.co.nz. All forms of investment involve risk, and returns are not guaranteed.