All posts by Adam Hyatt

Retirement Planning Tips For Your 40’s

Ask anyone in their 40’s what their concept of retirement is and you’ll probably get a whole range of different answers. Retirement isn’t a one size fits all package deal and quite often, it can be overwhelming to think about. People in their 40’s are usually aware of the need to save for retirement but let’s face it, sometimes life just gets in the way. 

If you’re a bit late to the game and you’re looking for some help and guidance, you’ve come to the right place.

Assess your current situation

The first step is to assess where you currently are with your finances. Log onto your KiwiSaver app and look at how much you currently have saved away for retirement.  If the number scares you, don’t worry, you’ve still got time and other investment vehicles available to you. Once you know where you currently sit, you can then start thinking about what type of retirement you want.  

Sounds great, but all of these will affect how much you need to save and what investments you may need to have on hand. Think of it as working backwards, figure out how you want to live your retirement and break it down into the steps you need to get there – something a financial adviser can help with if it seems overwhelming or you just want to look at all your options.

Of course, there are a bunch of online tools set up to help you with the planning too.

Get financial advice

When do you plan to retire? How does your retirement look – Do you, for example, want to stay in the same country, or move somewhere the sun shines more frequently? Are you looking to get more active on the golf course or spend more time lunching with the ladies?

It can be rather overwhelming realising you aren’t saving enough for retirement and having to revaluate how you are living your life. If you find yourself in this situation it can be hugely beneficial to engage the services of a professional financial adviser to go over your options.

Experienced financial advisers have seen it all before and can come up with bespoke financial strategies that suit you and your family’s needs. They can help you with prioritising and finding the balance of your expenses and also look at ways you could passively set yourself up to be in a stronger financial position when retirement does come around. For example, a frequent balancing act that people seek out financial advisers for is between saving for retirement and repaying the mortgage – let a professional run the numbers for you.

Look at building a passive income

Having income from various sources can be a huge help in saving for retirement. If you haven’t already, look at ways of building a passive income. For example, investing in property and/or building a share portfolio can be a great way to boost your savings.

On the other hand, having debts hanging over your head can drastically impact your savings and even your confidence when trying to plan for your future. If you aren’t sure where to start with repaying your debts, a financial adviser is a great solution. They can help you structure your debts correctly to make sure you are paying them off realistically or even checking how much you may be able to borrow for an investment property.

Protect what you already have

People in their 40’s are at their peak earning years – it is when you should be saving the most and earning the most. Working in your 40’s is vital for setting yourself up for retirement and not being able to work can devastate your retirement plans. It is important to ensure you have the right protection so if anything happens along the way, you are covered and still able to pay your mortgage and your bills whilst still saving for your future.

Many believe it won’t happen to them, but if something does happen, not having an income, whether in the short or long term, makes an awful situation all the more worse. Why take the risk?

If you would like to be connected with an experienced adviser who can answer all your retirement questions, please feel free to get in contact and we can point you in the right direction.

Are you on F.I.R.E?

Have you heard about the FIRE (financially independent retiring early) movement?

A small group young of Kiwi’s, led by Wellingtonian Nick Carr, are joining a global savings movement where members aim to live frugally and save 25 times their annual income to allow retirement decades early. Even though FIRE is not a new idea, the savings movement has been reignited through the world of social media, dedicated websites which offer members encouragement and savings tips, and even pod casts. However, many FIRE members say their focus isn’t necessarily on retiring early and taking themselves out of the workforce, rather, their focus is actually on gaining financial freedom.

Why 25 times your annual income?

The rule of 25 is used by FIRE members as this number represents a retirement portfolio which could provide a specified annual income and not deplete the capital base – so you don’t run out of money and go broke part way through retirement. For example, if you estimate your retirement spending to be $50,000 per year, under the FIRE rule, you would need to have saved $1,250,000 before retirement.

Methods of saving that NZ based members have implemented include; downsizing to smaller homes in less desirable suburbs, shopping around for better deals on utilities, only eating at home, ditching cars and opting for public transport, sharing homes with flatmates and using budgeting tools to track spending.

The FIRE movement may not be for everyone though and has drawn a few criticisms, such as the practicality of living so frugally as well as the emotional repercussions of constantly obsessing about your spending. However, the most common theme among members, which is usually echoed by many, is to reduce mortgage debt as quickly as possible as this represents a massive step towards financial freedom. Although high house prices across New Zealand can make the goal of eliminating mortgage debt before 50 seem like a distant dream, the right planning, sacrifices and debt management, can help you see that dream achieved a little faster.

No matter your age or the size of your retirement goal, many professionals agree that the best way to get started saving for retirement is just to simply look at your current income and expenditure. By reviewing your expenses you can discover areas where you may be able to cut back on unnecessary spending or better manage debt (both long term and short term) in order to make the most of potential savings.

If you have any questions about the FIRE movement or would like to speak with one of our qualified advisers about planning for your retirement, please do not hesitate to get in touch.

Do I have enough money to retire?

How much you need to have saved or invested for retirement is never straightforward. As you can imagine, the answer is unique to every person as it depends upon factors such as the lifestyle they wish to lead in retirement and what access they will have to investments to fund their desired lifestyle.

However, no matter your current position, it is best to tackle retirement planning sooner rather than later – leaving it until your mid 50’s may well be too late. Below we take a look at what the average Kiwi’s retirement may look like and the level of savings or investments they need to have established at retirement.

As previously mentioned, retirement lifestyle is the number one variable to consider. Do you want to be living in a freehold home or will you be happy renting? Do you want to travel regularly and spend money on entertainment?

Most retirement planning specialists work with a rule of thumb that you will need approximately 80% of your pre-retirement income if you want to maintain a comparative lifestyle. With the average income for a 60 to 64-year-old Kiwi being $60,736 per annum, you would need to approximately $48,589 per annum. Should you qualify for NZ Superannuation, this could provide you with roughly $20,800 or $16,016 per annum depending upon your living situation i.e. living alone on in a partnership.

As you can see in the above figures, NZ Superannuation will not be sufficient to maintain the average Kiwi retirees desired lifestyle from the age of 65. This will leave many having to consider working beyond the age of 65, reducing their retirement lifestyle expectations or relying on other means to generate an income. For many, there will be access to KiwiSaver upon retirement. However, additional savings or investments will be needed above and beyond KiwiSaver.

As an example of what the average Kiwi may need to have saved to retire, should you wish to generate an additional $40,000 per annum for 20 years from investments, which provide an average net return of 3%, you would need an asset base of approximately $600,000 (assuming you do not wish to have any capital remaining at the end of 20 years).

The above may be a daunting figure to comprehend which is why many do not deal with the issue head on. And what can be even more daunting is the fact that the costs of living tend to be steadily increasing – so in reality you may need access to more funds than what you initially budgeted. However, with a little help and discipline it is not unachievable. This is where Home Advantage can step in. Our team of advisers can coach you through the retirement planning process, explain your options and opportunities, and help you come up with a sustainable plan that works with your life as it is now.

We are extremely passionate about ensuring that Kiwis get to enjoy the lifestyle they want when they retire, because after all, isn’t that why you have worked so hard?

If you would like help with any aspect of retirement planning, please feel free to book a complimentary in-home consultation so that you can speak with one of our retirement planning experts.