Think You Might Outlive Your Retirement Savings?
Mon June 10th 2019
Six things you can do right now.
Do you know how long you will live? It seems like tempting fate to be guessing when you're going to die, but it's an important question to consider when you're hoping for a comfortable retirement. One study by Massey University and Westpac indicated as much as 47% of superannuitants feel they haven't saved enough for the lifestyle they want. Many can't afford the occasional take-away, let alone a restaurant meal, and fully a third of respondents aren't happy with their retirement. Some have had to give up long-held dreams of holidays or travel, as they struggle just to make ends meet.
You can take an educated guess at how long you're likely to live – use a Statistics NZ spreadsheet to work it out, based on the latest population predictions and historical information collected since 1876. There's no question that most Kiwis are living longer, and if your health and diet are good, you're likely to be one of them. That means saving enough for a long, enjoyable retirement.
If you're nearing retirement or already retired and think you might not have enough, here are some things you can do now.
1.Know what you want and make a plan
If you're still saving for retirement, contributing to a KiwiSaver account is just the beginning. If you aren't sure what to do next, it could be time to talk to a financial advisor. That way you can think about what you really want to be doing in your retirement, and work out the optimum amount for accomplishing that. We can help you crunch the numbers and create a personalised retirement plan for $450 (inc. GST)
A financial adviser will help you decide on goals and a timeline for saving, and guide you on taking advantage of other investment opportunities. When you have a manageable plan for saving, one that still meets your current commitments, you're on your way.
2.An annuity could be right for you
You might be more comfortable knowing exactly what's coming in every week, and an annuity can give you that confidence. If you expect to live into your 90s, it's one way to invest your KiwiSaver funds. There are two kinds of annuity:
Some insurance companies offer annuities that provide a regular payment right up to your death. Take your KiwiSaver money along – but find out the details and what the company does with any leftover cash when you die. Some companies keep it, and others pay it into your estate, after extracting their fees. You also might be able to draw down a bit extra from time to time.
You can keep your money invested, and pay yourself a set amount regularly, or the income from interest. Be careful with the amount, though – you could live a great lifestyle, but you might drain your capital really quickly. Be sure to find out the annual investment fee, and whether you can easily withdraw cash when you want it.
3.Stick with some growth
Some experts advise people nearing retirement to minimise risk, by moving their investments into a conservative fund. But if you're healthy, you could be planning for at least 20 years of retirement, and your savings will go further if you can keep a portion in growth funds.
But how big a portion? Calculate it like this: subtract your age from 100% and invest the difference. For instance, if you're 65, then you should put 35% of your funds into growth assets. As you get older, the percentage drops, as does your risk exposure.
If you're not comfortable with the risk, consult a financial advisor for the best way to make your savings stretch.
4.Vary your income to make funds last
During your working years, inevitably there are times when you have less money to spend – living on one income while you raise children, buying a home and paying a mortgage, moving cities and paying more rent. Just as you tighten your belt and spend less when your disposable income drops or your expenses go up, so too can you vary your retirement income according to how your investments are faring.
Investment markets don't drop often – once or twice in twenty years – but when they do, you might think about temporarily reducing your drawings, or putting off the purchase of big-ticket items. You can go on that world trip next year, when your portfolio starts earning better dividends again. That way, your investments will give you more income for longer.
5.Don't completely retire just yet
Age 65 means 'retirement', but plenty of people are still healthy and active, and choose to continue working. You don't have to do a full 40-hour week if there are other things you've planned, but even a part-time job can help stretch your retirement savings.
Consider this scenario – you have a retirement fund of $400k on a moderate risk profile and you spend $25,200/year on top of your super.
If you worked part time from 64-67 – only three years past 'retirement' – your savings will last five years longer than if you stopped work entirely at 64.
You might find that completely retiring after a long career is a difficult adjustment, anyway. You miss your work mates, your days are suddenly unstructured, and you might even find yourself getting a bit down. By easing into that new, more relaxed life you'll make the transition smoother and help stretch your retirement savings in the long run.
6.Tighten your belt or downsize
Are you already retired, and you suddenly realise you don't have a plan? Don't panic – there are still ways to make your retirement more comfortable. With kids moved out and no income to protect, it's time to cancel some insurance. Are you still in that big family home? Exchange it for something smaller and easier to care for, and free up some of the capital.
If you're renting, look for a smaller or cheaper place, or move in with family. If you get on well, sharing living space saves everyone money, and your savings will last that much longer. If you don't have that option, check to see if you're eligible for a top-up benefit on your super, to help pay your rent or other important costs.
Stay well, live long and make a plan
Most Kiwi women born after 1970 will live to be 88-90 years old, barring accidents. Men don't last quite as long, but most will still probably see a ripe old age. That means up to 20-25 years of retirement on average, a long time in anyone's view. What do you dream of doing when you stop work? How will you make it happen?
If you have high expectations for your later years, dreams that will cost some money, then the sooner you start planning and saving, the better. Those dreams won't pay for themselves.
If you want Michael to do a snappy retirement plan which works out your numbers for you (what you will need for the life you want and what you need to do to get it) we can do that for just $450 inc.GST. Book a time to talk about it here.
Need some help?
Drop us a line using the form below and we'll be in touch to talk through your insurance or financial needs.