Planning your retirement

Retirement planning isn’t just about deciding how much money you’ll need after 65 – it’s also about being prepared for the financial pressures that tend to strike later in life.

Here are three financial risks to factor into your retirement planning. 

One. Settling for low risks and low returns

At 65, you’re able to withdraw funds from your KiwiSaver.. Some Kiwis choose to transfer their KiwiSaver investment to term deposits because they’re worried about their fund’s exposure to share market risk.

But if you cash up your KiwiSaver investment and move to term deposits, the real value of your capital could be eroded by inflation each year.

The key is to understand what mix of investments might be right for you by thinking about your goals, timeframes and how comfortable you are with risk.

A Financial Markets Authority survey found that nearly three-quarters of Kiwis were aware of term deposits as a safe, low-risk investment. However, only 42% understood that investments with the potential for higher returns usually come with a higher level of risk.

At 65, you’re likely to have many more years of retirement ahead of you. That may be long enough to have some shares in your investment portfolio, as they have historically given a higher return over time than term deposits.

Two. Increasing medical costs

Even if you’re fit and well when you retire, your healthcare needs are likely to increase as the years go by.

Costs to factor into your retirement planning may include private healthcare, in-home care, house modifications and retirement homes.

Planning for health and aged care costs will give you more lifestyle options as you get older, so you don’t have to rely on state support alone.

Three. Cognitive decline

For some older people, cognitive decline increases the risk of making mistakes or poor financial decisions, or of falling for a fraud.

If you are no longer able to manage your money or property, your husband, wife or partner won’t automatically have the right to access your bank accounts or make decisions about property held in your name. Your family would have to apply to the Family Court to have someone appointed as a property manager, which can be expensive and time-consuming.

One solution could be to set up an enduring power of attorney (EPA), which enables you to choose someone to look after your money and property if you’re unable to. You could choose a family member, a friend, a lawyer or a trustee company, such as the Public Trust.

This information is provided in a general nature only and should not be construed as or relied on as financial advice. This is not a recommendation to invest in a particular financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any investment decisions.

Past performance is not a reliable indicator of future performance. The value of your investment may go up and down.