Things to think about before you retire
The concept of retirement means different things to different people. Whether it is the opportunity to travel and explore more of our own country, to spend time with the grandchildren, to start a new project, to pick up a new hobby, or to dabble in a mixture of all of the above, retirement is a time to enjoy. And, retirement should be a time to be free of financial stress. It can be a major life transition and we need to be honest about what our goals are and what trade-offs we are willing to live with. Even if retirement seems a while away, it is good to have a plan. Here are some things to consider before you retire.
1. How much do you need to retire?
Everyone’s retirement goals are different. To work out your goals, start by thinking about how long you expect to have in retirement, and what sort of lifestyle you want.
How many years will I have in retirement?
There is no ‘retirement age’ in New Zealand. NZ Super is paid from age 65, but you don’t have to stop working to get it. These days, more and more people are working beyond 65 either full time or part time.
Statistically we are living longer these days too. On average, 80% of 65-year-old men can now expect to live until they're 90, and 65-year-old women until they're 94. In the future, we will probably live even longer. Before you plan on retiring, it is worth using tools such as Sorted’s Retirement Planner to establish if you are on track to having enough to last your retirement, or need to make changes to your savings strategy to help you reach your goals.
What sort of retirement lifestyle do I want
What will your cost of living be in retirement? Some costs may go up (like healthcare) while others (such as education, clothing, housing, work-related travel) may go down. If you have children, they may be financially independent.
Recent research reveals what New Zealander’s are typically spending in retirement, which may help you refine your budget and lifestyle expectations. According to the study, a basic “no frills” lifestyle for a single person in a main city was $602 a week, or $574 if they lived in a rural location. A more comfortable lifestyle, with some luxuries and treats (“Choices”), cost $1,190 in a main city or $831 in the regions.
For couples, a no frills lifestyle was $899 in the main cities or $640 in the regions. For a more comfortable lifestyle, couples were spending $1,436 in the main cities or $1,136 in the provinces.
You now know how much retirees generally spend in retirement. While this is not necessarily reflective of your goals, knowing these figures can help you plan so you achieve the retirement lifestyle you want.
2. Where will the money come from?
The current NZ Super rates after tax are $424 a week ($22,039 a year) if you’re single and living alone, or $652 per week after tax ($33,906 a year) for qualifying couples.
As referenced in the studies above that show many New Zealander’s are spending more than the NZ Super allowance each week in retirement, it is becoming increasingly common for retired New Zealanders to get their weekly income from at least two main sources – NZ Super, and their own savings. Retirement funds such as the Teachers Retirement Savings Scheme (TRSS) help boost weekly income, enabling you to maintain the lifestyle you want.
TRSS also allows members to make regular partial withdrawals from as early as age 50 (basic and voluntary accounts), or if you are still in service and wish to make regular fortnightly or monthly withdrawals, you can do so from age 55. Refer to the member booklet for more information. Making regular withdrawals from the Scheme after retiring, and continuing your membership with TRSS, could be a good way to enjoy having your money invested and generating returns if you don’t need to withdrawal the full amount.
Other sources of income could include investment income from the sale or rental of property, the sale of a business or an inheritance.
3. Getting rid of debt
Paying off debt in retirement can be more difficult due to reduced income. Paying off debt, including home loans, before we retire is advantageous because debt repayments can be one of the largest expenses for many people.
If you have any expensive debt (high-interest credit card or hire purchase debt), the first step in your retirement plan should be to pay that off as quickly as possible. Sorted.org.nz has a guide to managing debt.
4. Get financial advice
Speaking with a financial adviser can help you to refine your savings strategy, articulate your financial goals, and ensure you take the necessary steps best suited your for specific situation.
Visit the Financial Markets Authority website for a list of financial advisers www.fma.govt.nz/investors/getting-financial-advice/finding-an-adviser
5. The perfect portfolio is a work in progress
As you get older, your timeline and needs change. So does your attitude to and tolerance for risk.
With that in mind, it is important to re-assess the structure of your investment on a regular basis according to your age and how close you are to retirement. TRSS has four investment options to choose from - Cash, Stable, Balanced and Growth. More about each investment option is explained in the Member Booklet. As you get closer to needing your super, people generally adjust their investment option to suit their time-horizons. You should discuss this with your financial adviser before making any changes to your investment options.
6. You are the best person to control your financial future
When it comes down to it, you are the only person that can take that step towards kicking off your retirement savings. And you are also the only person who can make sure that your continuing strategy is right for you. So take ownership of your super and take control of your financial future!
15 March 2021