Smooth The Road: Plan & Invest. Edition Six, January 2023.
Welcome to 2023. So far we've had a major resignation, New Zealand's largest annual price increase on food in 32 years, a state of emergency in Auckland, and summer hasn't shown up yet in the North Island - and we're still in January. As we kick off a new year, with new challenges, I thought I would bring this newsletter back to the basics. Retirement.
Retirement planning is an important aspect of financial planning that should be considered by everyone. It can be a daunting task, but with the right information and tools, it can be manageable. With the average life expectancy in New Zealand at 81.5 years, it's crucial to ensure that you are financially prepared for your golden years. The earlier you start planning, the more options you'll have and the more comfortable your retirement will be.
Here are a few tips for New Zealanders to help you get started on your retirement planning journey.
Start saving early: The earlier you start saving for retirement, the more time your money has to grow. According to a report by the Commission for Financial Capability, only 47% of New Zealanders aged 35-55 have a plan in place for their retirement. By starting to save early, you can take advantage of compound interest, which can greatly increase the amount of money you have saved for retirement. Plus, you'll have more time to perfect your "I'm retired, I don't have to adult anymore" attitude.
Understand your KiwiSaver: KiwiSaver is a government-subsidized retirement savings scheme. Employees can choose to contribute at least 3% of their salary to their KiwiSaver account, but you can choose to contribute more. Additionally, by law, your employer must contribute 3% of your salary to your account as well. It's important to understand how much you are contributing, what type of fund you are in, and how much your employer is contributing, that way you can spend your golden years sipping cocktails on a beach in Rarotonga, not worrying about your finances.
Seek professional advice: Speaking with a financial advisor can help you understand your options and create a retirement plan that is tailored to your specific needs. According to the same report by the Commission for Financial Capability, only 19% of 35-55-year-olds have sought professional advice for their retirement planning. A financial advisor can help you understand your current financial situation, your retirement goals, and develop a plan to achieve them, so you can retire with peace of mind.
Consider other sources of income: In addition to your KiwiSaver account and any other savings you may have, consider other sources of income for your retirement, such as rental properties or investments. Diversifying your income streams can provide additional security in case one source of income is not sufficient. Plus, you'll have more money to spend on travelling or spoiling your grandkids.
Be realistic about your retirement goals: It's important to have a clear understanding of your retirement goals and to be realistic about what you can afford. The Commission for Financial Capability reports that only 42% of 35-55-year-old Kiwis have a clear idea of how much money they will need to retire. It's important to consider your lifestyle, expenses, and any potential healthcare costs in your retirement planning. And, if all else fails, remember you can always start a side hustle in retirement to keep things interesting.
Review your insurance coverage: As you approach retirement, it's important to review your insurance coverage to ensure that you have adequate protection for your retirement years. This includes health insurance, life insurance, and other insurance such as trauma and disability protection. By reviewing your coverage now, you can ensure that you have the protection you need in case of unexpected events.
Plan for retirement with your partner: It's important to involve your partner in the retirement planning process. By setting retirement goals and discussing your plans together, you can ensure that both of you are on the same page and that your retirement plans align.
Don't wait until it's too late to start planning for your retirement. By taking small steps now, you can ensure a comfortable and enjoyable retirement in the future. Saving for retirement is like a good bottle of wine, the earlier you start, the better it gets over time.