Retirement Essentials

Retirement is often much anticipated, but poorly planned.The balance between prioritising today and saving for the future is tricky, and can be a case of “out of sight, out of mind”. But what are some important considerations to think about when almost (or already) in the golden years? There are several ways you can still optimise your retirement from your 50s, 60s and beyond

Setting a realistic budget is key. We often tell our kids about the importance of budgeting, but do we practise what we preach? Many underestimate how much they’ll need in retirement. Even without a mortgage, there are still plenty of housing costs: rates, insurance, maintenance, upgrades and more. Health insurance also gets more expensive the older you get. Another consideration is how you’ll spend your new-found extra time. Activities, travel and eating out more could cost you more than working life did.

Massey University publishes useful retirement spending guidelines annually, estimating the yearly costs for different retirement lifestyles. And to understand how much you need at retirement to be able to afford your yearly spend, my favourite tool is the “rule of 4 per cent”, which states that you should be able to withdraw 4 per cent of your nest egg each year of retirement for at least 30 years (often longer). So if your annual spend is $100,000, you’d want to accrue $2.5 million to meet this rule.

Your KiwiSaver account is another important asset for retirement. It may be tempting to withdraw your full balance immediately at 65, as is your right. However, this may not be the most savvy approach. Remember, your KiwiSaver is a professionally managed investment, so your balance should continue to grow well into your retirement. Instead of a full withdrawal, you could set up automatic regular withdrawals as supplementary income on top of Superannuation payments. This keeps the balance invested, with the potential to increase and stretch out the total amount you’ll have available. Try to continue contributing enough to qualify for government contributions right through to 64, even if you’ve stopped work before then. If manageable, you could also consider ongoing contributions past 65.

A common belief when it comes to retirement savings is that you should be in super conservative, lower-risk options from 65+. I personally disagree with this approach, although I’m certainly not advocating for crypto! The reality is that at retirement you could live another 30+ years. So why invest solely in assets typically suited to short-term investment horizons?

Returning to your KiwiSaver strategy, you could split out some of your balance into an investment fund with a different level of risk, then set up your regular withdrawals from the more conservative fund. This allows you to keep the rest invested longer term in a higher-risk fund with potentially higher returns. Doing some light research or engaging a financial advisor can help you get the allocations right.

Diversification remains the golden investment rule. A diversified portfolio is less vulnerable to significant losses as different asset classes react differently to market ups and downs. It’s worth thinking about splitting your nest egg across a range of assets, whether that includes term deposits, managed funds, property or other. Note that all investments carry risk, and diversification is just one tool to lower (not avoid) risk. So it’s essential to carefully assess your risk appetite, goals and investment time frames when managing your portfolio.

Last but not least, remember to have fun and enjoy the fruits of your labour. You’ll have spent several decades getting to where you’re at now, and it can be hard to let go after the discipline of building savings up. But you never know just how long you’ve got left on this earth. A sad but timely example of this is my father, who, at 74, had finally just started to settle into retirement. Unfortunately, just two weeks ago, as I finalised this column, he passed away after a very unexpected accident. I can’t help but lament how much retirement he didn’t get to live, being taken too soon. So in the words of Anthony Bourdain: “Eat at a local restaurant tonight. Get the cream sauce. Have a cold pint at 4 o’clock in a mostly empty bar. Go somewhere you’ve never been… Enjoy the ride”.