Will I have enough for retirement ?
How long will my money last ?
Will it run out before I do?
How can I work it out?
How can I stop worrying?
Some of these people are not yet retired, and some have been retired for a while.
Step One - Get a school exercise book
Get a decent sized book, and every month write down what you own, and its value i.e. your house, other properties, investments, KiwiSavers, your business, farm, boats, caravans, etc. Use a fair market value, not rose coloured glasses prices.
In another column, write down what you owe i.e. mortgages, credit cards etc., but not routine bills.
Total them up, and then deduct what you owe from what you own.
That is your net worth.
If you do this each month, you will soon see a trend - up or down.
If the trend is reassuring, you can stop worrying.
If the trend is not good, then take action.
Take action, get advice, and make a plan.
If you are retired and your money is slowly going down, that is pretty normal.
As long as it not going down too fast, you probably don’t need to worry.
Remember the key thing – you will not live forever. I said this to a client the other day and he laughed and laughed (at himself).
It then follows that your money doesn’t have to last forever either.
Step 3 - use a calculator
Get onto a website like XML and use the retirement planning calculator.
Or if you are retired, use the “how long will my money last” calculator.
Both are easy to use and very fast.
I use this website a lot for people and it is most helpful, but remember to;
- Work on 5% nett return
- Let the programme add 3% inflation
- Remember you will spend less when you get over 85 to 90
- Possibly a lot less
- And don’t panic - you won’t live forever
- Add NZ super to your investment income*
*It is about$28,000 pa for a couple and nearly $20,000 pa if you live alone (after tax at the lower tax rate).
Step 4 – you can downsize your house later on
Most of us can and will downsize our house later on, and yes I hear you saying you never will, but I’ve heard that before. In reality nearly everyone does around age 77 to 84.
If you are worrying excessively, go for a drive and look at real estate in the area you might like to move to, and see what you could buy for say $200,000 less than the value of your current home.
It can be a reassuring exercise, and fun too.
A word of caution – when and if you do move, allow for real estate fees, legal fees, moving costs, and that inevitable new car, or new fence, or new kitchen. Do your sums and factor these costs in before signing any sale agreement, or you may not release anywhere near as much cash as you had hoped for.
Step 5 - if Steps 1 to 4 fail to help
If you are still, worrying, go and see your financial advisor. Some of us grey haired old coots have been around a fair while and will know (almost instinctively) if:
- you will have enough money for retirement
- you are ploughing through your money too fast
Step 6 – get informed
“Knowledge is power, and information is liberating” - Kofi Annan
- so stop worrying about the problem
- seek the appropriate knowledge and information
- that will help liberate you
- then you can get excited about fixing it
- or maybe you don’t have a problem at all
Next week - Part 10 – choosing an investment you can rely on – probably the last one on that topic.
Supplied by Alan Clarke, financial & retirement adviser, & author.
His 2nd book “The Great NZ Work, Money & Retirement Puzzle” is now available.
Alan is an independent authorised financial adviser (AFA) FSP26532.
His disclosure statement is available on request and free of charge.