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Retirement, or the “third act” of life, is a major milestone in your life. It’s the time when most people stop working or wind down their working hours and start to have more time to do the things they want to do. This sounds great but working less or not working also means you’re no longer generating the same income. For that reason, you need to plan ahead so you’ll have enough invested and saved to live on. So how do you go about devising a solid retirement plan? Whether retirement is 10 or 30 years away, consider these strategies when you’re planning for your retirement.
1. Calculate how much you’ll need
There’s no set retirement age in New Zealand, but the typical age people aim for is 65. This is the same age at which those who are eligible for NZ Super start receiving it. Keep in mind the average life expectancy for Kiwis is 81.6 years and projected to keep rising. Consider how long you expect to live after retiring. Then work out how much you’ll need. Some estimates suggest a single person and a couple with no mortgage living in a big city will need about $600 or $898 a week, respectively. This is for a no-frills, frugal lifestyle with little left over for entertainment, clothing, and travel. For a lifestyle with some luxuries, you’ll likely need around $1,190 a week. This simple retirement calculator helps you work out whether you’ll have enough in your KiwiSaver for the lifestyle you want.
Note the overnight shift from full-time employment to retirement might not be for you. You might retire in stages, making a gradual transition with some part-time or casual work. This will affect how much you’ll need in semi-retirement.
2. Work out your income after retirement
The next step is to work out how much you’ll likely have after you stop working. How much will you have in KiwiSaver and should you review your investor profile, to preserve your balance or to grow it more quickly? If you’re eligible for NZ Super, work out how much you’ll likely receive. Whether you’re part of a couple, a single person, or living with a dependent can impact how much you get. Most Kiwis start getting NZ Super once they turn 65, but you could have other sources of income. Keep in mind these could affect your tax and benefits you’re eligible for.
For example, you might continue working part time, or you might receive a pension from overseas. Also consider whether you’ll be free of debt by the time you retire or whether you’ll be continuing to pay off your home or other debts. Knowing how much you’ll have coming in and whether you’ll have debt to pay off will give you a good idea of how much extra you need to save so you’ll have enough to live your ideal lifestyle.
3. Consider how you want to spend your time
Your retirement years are a wonderful time to get to everything you’d like to do and it’s vital to have a clear vision for this stage of life to get the most out of it - and so you know how much it’s all going to cost. Pursuing the activities you like can boost your mental and physical well being, and it can make for a much more fulfilling retirement. Consider the things you enjoy most and work out how much these activities are likely to cost. Eating out, hobbies, sports, and other activities will affect your budget, and it’s a good idea to make sure you’re accounting for these in your retirement projections. Bigger items like travel will obviously demand more of your budget, so plan for these as well.
4. Plan for downsizing or relocating
Downsizing and moving are all major decisions and should be incorporated into your retirement plan. The majority of homeowners are mortgage free by retirement age in New Zealand. However, you might decide to relocate or downsize even if you already own your home outright, and being mortgage free could make the process that much easier. The question of relocation or downsizing can be based on factors like your financial situation, health and appropriateness of your home, and your partner. Your family set-up, home maintenance, and desired retirement lifestyle and activities can also impact your decision. For example, downsizing lets you release money from your property. Even if you’re many decades from retirement, knowing you have the option to downsize can give you more financial flexibility.
5. Be clear about investments, insurance, and estate planning
Consider your investment preferences and risk profile, which applies to money you have in KiwiSaver and other investments outside it. For example, in your earlier working years, you might take more risk with your investments for the chance at bigger gains. By contrast, the closer you are to retirement, the more conservative and value-protecting your preferred investment strategy might be. Similarly, check your insurance (from life insurance to income protection insurance) regularly and make sure it’s still appropriate for your current goals as well as retirement plan. Finally, update your estate plan as you update your retirement plan, as an updated estate plan enables your assets to be distributed in the way you prefer.
Retirement as a beginning
Some people might see retirement as the end of something. In reality, retirement could be the beginning of wonderful adventures and new experiences. You’ll have more time to do the things you’d like, including working part time, studying, travelling, or pursuing other hobbies. It’s never too early - or too late - to start planning for your retirement. However, to ensure you can spend your retirement years in the way you’d like, you’ll need to have a level of financial security. Starting as soon as possible gives you more time to recover from any setbacks and grow your wealth. Whatever your retirement aspirations might be, planning ahead is the best foundation for a fulfilling time in the third act of life.