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Why plan for retirement?

October 1, 2020

Retirement is coming ready or not. Better to be ready than not.

What kind of life do you want in retirement? The average life expectancy in New Zealand is increasing and depending on when you were born, you might live to reach 90. Retirement can last a long time. It’s also a time when quality of life really matters. Planning and preparing can be the difference between living life well  in retirement or just surviving.  Here's some reasons to start saving for your retirement and some financial options to help you get the kind of life you're hoping for once you get there.

Your life in retirement – what’s at stake?

The early years of retirement can be seen as the go go years. The start of a new normal when work and family commitments ease, freeing up time to do more of the things you want and hopefully money to start living some of those retirement goals:

Take a dream retirement holiday

What could be better than logging off, returning the swipe card, hanging up your tools or sharing a final drink with your workmates ahead of packing for the retirement trip of a lifetime? Surely that’s a trip worth saving for. Just bear in mind these trips don’t come cheap – according to Kiwi travel site Travel Money the average cost of a two week trip to London for a couple from NZ is more than $8,000 without spending a single cent on attractions or food.

Make space for your retirement hobbies

Are you looking forward to more spare time in your retirement? For many, retirement is all about freeing up time to do the things you love – time with friends and family or time on your own. Maybe you'll build the man cave of your dreams complete with bar, flat screen TV and pool table. Or maybe you'll commit to spending more time on your interests, whether it’s fueling a passion for creative things like writing, art, crafts or something else in a purpose built studio space kitted out just for you.

retired woman looking over paint palettes at table

Live every day like the weekend 

What did you do on your days off last week and how much did you spend? Perhaps it involved a meal out, coffee or drinks with friends, supplies for a DIY project, some new clothes? Whatever you did to enjoy your days off sometimes it feels as if they came and went too quickly. When you hit retirement, your everyday life can feel a bit like your days off – having the funds to support your ‘weekend’ lifestyle is probably a good idea.

Retire early

Why wait till you’re 65 to live the retirement dream? Give up paid work earlier or cut back your hours and move into semi-retirement to free up time to do what you want when you want.

Either way retirement may mean working less but the income you need to fund your life in retirement may not be that much less. To meet your expectations, you’ll need to reduce your expenses or find another source of income. KiwiSaver doesn’t kick in until you’re 65 but there are other similar options out there that can bridge the gap. It all comes down to knowing what you want and planning for it.

How to make your retirement dreams happen

three sitting by camper watching sunset

Having a clear picture of your life in retirement is one thing. Making it actually happen is another. There are no guarantees in life but having money and a plan can help make your dreams reality. Start by knowing how much money you think you need so you can figure out the best way to try and grow your money to get there. What are the options?

1. Keep cash under the mattress or in a jar?

Not everyone feels good about handing their money over to someone else to look after. For some people the option with the least risk is to put it in a jar or keep it somewhere safe in the house.

Trouble is, you might have the comfort of knowing exactly where your money is but that’s about all. There’s no ability for it to grow and if disaster strikes such as a fire or burglary your savings could be wiped out.

2. Keeping money in the bank

Kiwis tend to favour term deposits and savings accounts but record low interest rates are forcing us to reconsider our options. With inflation rates predicted between 0.8 to 1.4% over the next few months these options mean your savings could potentially lose value.

Term deposits have their advantages. The return is usually known up front and they are a stable investment. On the flip side they are fixed for a period and offer lower returns than other investment options.

Savings accounts generally have a bit more flexibility but offer lower returns than term deposits.

When it comes to planning your retirement, using a tool like Sorted’s savings calculator can help provide perspective. For example, take a middle of the road 1.15% term deposit rate for five years with interest paid at maturity, and plan for that retirement holiday in Europe at a cost of $8,000.

You would need to invest just over $7,550 today to have $8,000 at maturity. With the impact of inflation factored in over five years, in real terms your savings may have decreased in value.

Put simply, term deposits and savings accounts offer certainty and less risk. But with current economic conditions are likely to do little more than keep your money where it is – the likelihood of growth is minimal.

3. Investing with managed funds

If you have a KiwiSaver account, you already have a type of managed fund. A managed fund generally invests in different amounts of cash, fixed interest, shares and other growth investments. They’re a great investment option for long-term goals as, even though there are ups and downs along the way, long-term, they usually generate greater returns than term deposits.

KiwiSaver is not the only type of managed fund. Kiwi Wealth’s Managed Funds have fewer rules than KiwiSaver and allow you to deposit and withdraw funds at any time without penalties (with KiwiSaver you must be 65 or doing a special withdrawal such as for a first-home).

Making the most of investing in a managed fund requires knowing a few basics around goals, risk tolerance and investment timeframe. You need to ask yourself things like:

  • What are you saving for?
  • How long are you saving for?
  • And how willing are you to see your investment increase and decrease in value whilst you’re saving?

If you want to understand more about this kind of thing it’s worth looking at the basics of investing.

Why have a retirement plan?

Knowing and understanding what financial products are out there and how they can help you grow your money is vital. But without context or a plan, it’s less likely you’ll be able to get that nest egg together.

A retirement plan doesn’t have to be complicated.  A good place to start is to calculate how much you might need to retire, and understand your options for financing your retirement.

Whatever your plans in retirement - some extra money is sure to help. We think investing with our Managed Funds is a great way to start as long-term, managed funds usually generate greater returns than term deposits.

See how Kiwi Wealth's Managed Funds could help your retirement.

Tags: Retirement, Managed Funds

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