Five steps to get over the retirement bridge

As published on stuff.co.nz 06/01/2022

I think we need to retire the word retirement.  It actually doesn’t represent and fairly reflect modern day Kiwis.

Retirement is quite a new word and has really only come into prominence since the 18^th century. Before then the life expectancy (depending on the country you lived in) ranged from 26 to 40 years of age, so says Wikipedia so it must be true.

Even my parents, who have both passed away, thought their life expectancy might be around three score and ten. 70 years of age in other words. However Dad lived until 88 and Mum 95. So they lived 18, and 25 years longer than they thought. That is quite a gap to make up if you thought that was the time you needed to cover in savings.

That’s why National Superannuation, our first retirement pillar in New Zealand for retirees, was so amazing when the universal pension was introduced in 1938. Finish your working career at 60 get a gold watch (if you were a banker), then live out your life over the next five or ten years and, if very lucky, 15. Many people’s jobs were so physically demanding that a few years was about all they could expect to get from their bodies before things gave up. By way of example, both my grandfathers died at 67 because they worked in coalmines all their working lives.

The modern workforce has changed dramatically since those times and for many Kiwis work isn’t as physically demanding now. Add in improved healthcare, both personally and medically, and our average life span has been increasing significantly over the past 50 years. While this is all good (who doesn’t want to live longer?) the key problem is having your savings live as long as you do.

I genuinely believe that this is causing a lot more stress and anxiety for New Zealanders as they see retirement now more like a mirage than an oasis. The pressure of living longer is not only impacting on our financial wellbeing but also the government’s, with New Zealand Superannuation becoming a larger ticket item that future generations will have to pick up the bill for.  This is causing intergenerational tension, especially as we see the housing market become a dream rather than a reality for our children.

So what can you do to become a little more resilient, so you can trip trop over the retirement bridge without bumping into the terrible troll who is waiting to dine out on your misery? Well here are five steps to help the greater cause.

Have a plan: The old saying “if you don’t know where you are going, any road will take you there” springs to mind and it is so true. I know it’s a pain, but writing down your goals and objectives can make a world of difference. If you don’t want to do it, pay a financial adviser to do one for you. It will make such a difference to your final outcome.

Diversify your investments: Don’t put all your eggs into one basket.  Kiwis owning their own home have become very rich over a relatively short period of time. But when it comes time to maintain your lifestyle, once you have finished work, you can’t just sell a bedroom to pay for your expenses or holiday. Invest regularly into the markets via KiwiSaver, managed funds and other products that will help give you greater diversification, depending on what risks you are willing to take and the timeframe you have before needing to use it.

Don’t invest too conservatively: Because you are likely to be living longer there is no way your investments will keep up with inflation and your extended age, leaving money in the bank. That is unless you have a lot of savings and I mean a lot.  A  Massey study late last year says that you will need $809,000 for a “choices metropolitan lifestyle” on top of National Super if you intend to stop work at 65.  That’s based on you eating your savings and dying at 90. So some options you may need to consider are:

• Dial back some of your spending now and invest the surplus in managed funds
• Work longer so you don’t need to eat your current savings and top up what you have already, which could include (if you are 65 or over) your fortnightly superannuation contribution from the government
• Let that 8^th wonder of the world (compound interest) help you enjoy the journey and invest in growth assets proportionately to your age and stage. Just because you stop working, even at 65 it doesn’t mean your investments and hard earned savings should.

Plan to eat your investments: The days of living off interest alone are long gone.  A great theory, and what a number of financial planners suggest when talking to their clients, is the three investment buckets.

• Bucket one: the money you need to live on and enjoy your current lifestyle. This needs to be in mainly capital safe investments so it can used to top up your superannuation payments.
• Bucket two: helps fill up bucket one. Could be invested for five to ten years, with some in growth assets.
• Bucket three: fills up bucket two. May be 10-plus years before you need the cash, which allows you to invest in even more growth assets, like shares and property. This helps keep the buying power of your savings there when you need them.

Invest time (and money) with a qualified financial planner.  It’s never too late to start saving for that next chapter in life.  Even saving a little more now might just make the difference between a good outcome or having to make some much harder decisions about your next chapter when you stop work. Getting advice now, taking into account the topics above and working out what your choices could be in the future will help you get over that scary bridge and not worry what might be under it ever again.

Disclaimer: David Boyle is Head of Sales and Marketing at Mint Asset Management Limited. The above article is intended to provide information and does not purport to give investment advice.

Mint Asset Management is the issuer of the Mint Asset Management Funds. Download a copy of the product disclosure statement here.