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Top Tips for Your Fifties

FiftyTop Tips for Your Fifties

Whether you plan to keep working after becoming eligible for NZ Superannuation or not, 65 still looms as the defining age for retirement, and it looms even larger in your fifties. Depending on your circumstances, the prospect of reaching 65 can lead to feelings of joy, fear or uncertainty. The ten years before retirement are like the last lap of a marathon race. If you are leading, you could easily trip and fall before the finish line. If you are at the back of the pack, it is still possible to have a surge of energy for a respectable finish.

Power up your savings

How much you save during the last few years of your working life will determine how well you live in the twenty or thirty years of your retirement. Work towards living on whatever your retirement income will be and save the rest.

Blitz your debt

Crunch your remaining mortgage by having part of it floating or as a line of credit, so you can make extra payments without penalty. Put your credit card on ice and use a debit card instead.

Slash your outgoings

If you have no dependents and a good asset base you may be able to cut back on your life insurance. Shop around for the best deals on utilities.

Boost your investments

It’s a myth that all your investments need to become more conservative as you get closer to retirement. Match your investments with the time frame in which you will need to access your capital; conservative for short term, growth for medium and long term.

Plan your dream retirement

The amount of money you need will depend on how you want to spend your retirement. Be clear on your retirement goals so you have a financial goal to make your dream real.

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Elder Abuse

Elder AbuseElder Abuse

Our population is aging and incidents of elder abuse are increasing in line with this trend. Elder abuse is a serious issue in New Zealand, and Age Concern report that they receive around 2000 referrals a year, with the most common types being financial, physical and emotional. For every referral, there are, no doubt, many more cases which go unreported.

Financial abuse of the elderly can take many forms. At the lower, but still unacceptable, end of the scale, is pressure put on elderly parents by their children or others with regard to their financial affairs. In some cases, children may put pressure on parents not to use up their savings in order to preserve the children’s inheritance. Such pressure could see the elderly being persuaded not to move into a rest home or retirement village, not to take overseas trips or buy a new car, and not to borrow funds for living costs through home equity release. Alternatively, children or others, such as caregivers or friends, may pressure the elderly to give them money or possessions. Loans may not be paid back, or the elderly may be co-erced into providing security or guarantees for loans. Elderly parents can sometimes be forced to accommodate, with no payment, children with financial problems or grandchildren whose parents cannot care for them. This can cause significant financial hardship. At the higher end of the abuse scale, there can be misuse of powers of attorney to take money or straight out theft of money or possessions.

Elder abuse is not OK. We all have a duty to watch for signs of it and take action if necessary. This may include contacting other family members or caregivers, referring the matter to a community organisation such as Age Concern, consulting a solicitor, or contacting the police.

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Annuities for Retirement Income

Retirement IncomeAnnuities for Retirement Income

Retirement is something to look forward to – a new way of being, and lots of new experiences ahead. However, there is one big concern, and that is making sure there is enough money to provide a comfortable lifestyle until the end of life. Accumulating money in KiwiSaver or superannuation scheme is straightforward; it’s just a matter of setting up a regular payment into the scheme where it is managed. Once the funds become available on reaching retirement, the big question is what to do with them.

In simple terms, most retirees want an ongoing income that is higher than NZ Superannuation and access to occasional lump sums for big one-off expenses such as buying a new car or travelling overseas. One solution for this is to have an investment portfolio which comprises an annuity to provide ongoing income and a lump sum invested in liquid assets which can be sold to release additional funds. An annuity is a contractual financial product which converts a lump sum into a series of regular payments for life. The payments made are a combination of investment return and repayment of investment capital. Old style annuities have no residual value on death and do not allow withdrawal of lump sums over and above the regular payments however there are new products which offer residual value and withdrawals.

Unfortunately, annuities have limited availability in New Zealand. Members of the now closed Government Superannuation Scheme and certain company superannuation schemes may have the option of taking some or all of their funds as an annuity. Late last year a new annuity product called Lifetime Income Fund was launched with the aim of making annuities a more widely available option for retired investors. The key advantage of annuities is certainty of income – something which most retirees desire.

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Living on NZ Superannuation

Retired CoupleLiving on NZ Superannuation

There is an avalanche of baby boomers who are retiring. The burning question for most of them is “How can I live on NZ Superannuation?” A couple who both qualify for NZ Superannuation receive around $576 a week after tax. That’s just under $30,000 a year. For people on an average or above average income, it is a significant drop.

Research released last year by the Commission for Financial Capability gives some clues. A survey of people aged 50 and over showed that most retirees have at least some savings and investments. Of those surveyed, only 28% said they had enough money to do all the things they wanted to do in retirement. Those without savings and investments were significantly more likely to be struggling to make ends meet. The conclusion is that NZ Superannuation is not enough to provide the kind of retirement most people want.

Everybody’s retirement expectations are different. Happiness in retirement comes when expectations can be met by available financial resources. The lower your resources, the lower your expectations will need to be in order to be happy. This might mean living in a cheaper house, moving to a small town where living costs are lower, finding pleasure from spending time with family and friends rather than expensive possessions or overseas travel, taking up hobbies that don’t incur big costs, and becoming more self-sufficient with food and energy. It is possible to live a happy but frugal life.

If you would rather increase your resources than lower your expectations, your options include continuing to work (perhaps part time), sharing your home with others, selling all or part of your house to family members, borrowing from family, or taking out a home equity loan. A happy retirement is all about cutting your coat according to your cloth.

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Overcome Your Retirement Fears

Overcome FearOvercome Your Retirement Fears

It’s not easy going back to work after an enjoyable holiday. Rather than returning to the same old drudgery, many people consider a fresh start by thinking about applying for a new job or contemplating retirement. Dreaming about a different life and making it happen are two different things. While some people embrace change and are good at bringing it about, others are more cautious or even fearful, despite their desire to make changes.

Retirement is something to look forward to rather than to be feared. Financial concerns are the main driver of fear and are often based on uncertainty and lack of information. Overcoming fear is a matter of addressing the unknowns, determining whether you are on track to be able to afford to retire and making any changes needed to get on track.

Start by determining your desired weekly retirement income. New Zealand Superannuation should (barely) cover the basics, so add on to that what you would like to spend each week on the ‘nice to haves’ such as going out for dinner or buying nice clothes. Turn this into an annual amount and add on an amount per year to cover big one-off expenses such as travel, replacing whiteware and vehicles and maintaining your house. Use a retirement calculator (there is a good one at sorted.org.nz) to work out how much money you will need to have invested to make up the annual shortfall and how much you will need to add to your savings to get to this amount. Make sure your KiwiSaver is invested in an appropriate fund and consider setting up a separate, unlocked retirement savings fund to supplement your KiwiSaver fund. Review your current budget to ensure you have the right balance between enjoying life now and saving to enjoy life in retirement

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Tough Times Ahead for Retirees

toughTough Times Ahead for Retirees

One of the key determinants of term deposit rates is the Official Cash Rate (OCR), which is the principal monetary policy tool used by the Reserve Bank to maintain price stability. Reducing the OCR has a stimulatory effect on the economy, as borrowers take advantage of lower rates to spend more. Eventually the increased demand for goods and services leads to higher inflation. While the focus of the Reserve Bank’s current policy of reducing the OCR is on borrowers, the flip side is that investors are also affected. When interest rates are high, investors are happy and borrowers suffer. Conversely, low interest rates lead to grumpy investors and delighted borrowers.

Of course the good news is that while interest rates are low, inflation is at a historical low of less than 1%. Looking ahead, it is clear that the Reserve Bank is intent on keeping interest rates low, resulting in a stimulus to the economy that will see inflation increasing over the next two years or so to around 2%. This is bad news indeed for retirees who are reliant on interest income. The result could be investment returns of less than 1% after tax and inflation. Retired investors should review their strategies and consider alternatives to term deposits. They should be prepared to let go of the notion that their retirement capital must be left untouched and that their income is restricted to investment returns. The key financial challenge for retirement is to run down capital in a planned fashion. A conservative approach is to plan to live for a long time to avoid the worst case scenario of running out of money before the end of life.

These are difficult times for risk-averse investors and careful planning will be required to deal with the tough times ahead.

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Prepare to Retire

Happy RetirementPrepare to Retire

A quarter of those in retirement say they don’t have the money to do the things they want. Another quarter say they have enough to do everything they want and the rest, around a half, are able to do only some of what they want. These are the grim findings of a recent survey of people over the age of 50 done as a joint project by the Financial Markets Authority and the Commission for Financial Capability.

Nearly half of those nearing retirement don’t have a financial plan for their retirement and only a quarter have thought deeply about the sort of retirement lifestyle they want. A minority of people have calculated their desired income and required expenditure and how much they need to save to top up their income from NZ Superannuation.

Key factors that get overlooked are housing costs and the impact of health on retirement.  Changes in health status can lead to additional medical costs as well as impacting on the ability to work and be active. Around 20% of people are likely to be paying rent or a mortgage in retirement and yet only a few of these people have considered what these costs might be and how they will find the income to cover them.

Of concern also is the conservative approach to investment in the over 50 age group, with bank deposits and residential property being the investments of choice. Only a quarter of those surveyed planned to invest in shares or managed funds. There was a high correlation between those who had more thoroughly planned for their retirement and those who were prepared to invest in medium and high risk investments.

There is no excuse for lack of preparation. Do your retirement plan through the Commission’s Sorted website and/or see a financial adviser.

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Migrating Pensioners

MigratingMigrating Pensioners

There is an interesting trend developing amongst retirees; they are increasingly on the move internationally, not only for holidays but to live overseas permanently or for extended periods. Better health and increased longevity for retirees are factors in this trend, as well as the desire to be close to children and grandchildren living overseas. This raises the issue of mobility of pensions, and it is a remarkably complex one. Your eligibility for a pension while overseas depends on how long you will be away and where you are going. There is generally no problem if you are intending to be away from New Zealand for six months or less, although it is a good idea to let Work and Income know you will be away. If you are planning on travelling for more than six months but with the intention of returning to New Zealand, you will need to make an application to receive your pension while you are away. If you have lived in New Zealand continuously between the ages of 20 and 65, you should receive the full amount of your pension and for lesser periods you will be paid a proportionate amount. For those intending to live overseas, arrangements will depend on where you are going. New Zealand has Social Security Agreements with several countries under which people moving between those countries are entitled to benefits and pensions. For example, if you go to Australia you will be able to receive New Zealand Superannuation for six months and during that time you will need to apply for an Australian Age Pension. This pension is income and asset tested and you may therefore receive less than the rate for NZ Superannuation. Because of the complexity, it pays to do your homework before you set off on your travels.

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The Three Bucket Approach to Retirement

Three BucketsThe Three Bucket Approach to Retirement

How best to get income from investments in retirement is a problem that has many possible solutions. The return on an investment portfolio is a combination of income (interest or dividends) and capital gain (the increase in the value of the investments over time). The disadvantage of income-producing investments is that the income is taxable and in general they offer little or no capital gain and a low return. The disadvantage of growth investments, which offer capital gain and higher returns over the long term, is volatility, and to get cash you may have to sell investments at a time when their value is down. Running down investment capital is another issue. Some investors wish to leave a sizeable inheritance while others don’t; some are wary of running down capital in the early stages in case large sums are required later. The three bucket approach to portfolio planning is a simple solution to these problems. Divide your expected retirement into three periods; the first five years, the next ten years beyond that, and your final years. Estimate your beginning retirement capital and how much you want to have left at the end in today’s dollars. Next, decide much you want to use up in each of the three periods. These are your three buckets of money. Plan to invest the first bucket (for the first five years) in term deposits or bonds and to use up both the income and capital over that period. The third bucket, including final capital, will remain untouched for around fifteen years and can be invested in growth assets. The second bucket can be invested in a combination of income and growth assets which will be converted to income assets only when the first bucket is used up. This is a simple yet effective approach.

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Guilt-free Retirement Planning

guilt-free-zoneGuilt-free Retirement Planning

Many books on retirement planning suggest you start thinking about planning your retirement when you start your first job. While it is true that the sooner you put plans in place for the long term the better off you will be, it is unrealistic and impractical to start planning too soon. Let’s face it, when you are a twenty-something, your priorities are to find your way in life and have a good time. For most people of this age, that means doing nothing more about retirement planning than joining KiwiSaver. Later in life, priorities shift to buying a house, paying off the mortgage and ensuring children get the best possible start in life. There is no need to feel guilty during these stages about not saving more for retirement than what you are contributing to KiwiSaver. The priority should be to get rid of all debt in as short a time as possible so as to have enough years left before retirement to build up your savings. If you can do this by around the age of fifty you still have a good fifteen years, which is a long enough time frame to invest in volatile, high return investments. Five years out from retirement is when you need to really accelerate your retirement planning. Start by setting your retirement goals, focussing first on how you wish to spend your time and then quantifying how much money you will need to achieve your goals. Work out a retirement budget for your everyday costs and a budget for one-off costs such as travel, home maintenance and replacement of your car. Aim to live on your everyday retirement budget for at least five years before you retire to give you time to adjust to a lower level of spending while maximising your savings.

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