Life being as busy as it is, we tend to put off longer term issues until they draw ever closer.
So it is with retirement planning. Again and again, I meet people who have left it pretty late to address these issues and plan ahead. Commonly people glance at it - it looks too complex or uncomfortable – and in it goes into the too-hard-basket.
Working forever is not that simple of course, as our health, energy, redundancy, or advanced age may prevent us from working even if we want to.
A common example
I have changed the names and details to protect privacy, but here is a typical scenario that I often encounter:
Mary and her husband Bill are now age 57, he is self-employed and she has a good job. Back in 2012, their children and mortgages finally stopped draining them, so they asked their friends what they were doing about retirement savings. All their friends replied “nothing, what are you doing?”.
So Mary went looking, learning, read my book, and approached me for some advice.
They had $40,000 “lying around” and calculated they could save $3,000 per month. In January 2013, they invested their $40,000 with us and have been adding in the $3,000 per month. Bill had agreed “on the condition that it does not stop me enjoying my annual Bali holiday, regular dinners out and Xmas at Queenstown”.
By January 2015, they had $128,000 and had averaged a return of over 8% per annum.
My calculations now show that they will have $550,000* at age 65 if they continue saving at this rate.
* assuming a return of 5% net.
Never allow waiting to become a habit. Once you start saving, it is like a ball of snow rolling along, ever growing bigger.
The savings programmes we set up for people are not contractual, so payments can be started and stopped at any time without penalty.
But of course, the more you put in, the better it works.
Neither Bill nor Mary had KiwiSaver schemes, but they did have old insurance-based superannuation plans, which typically have very high internal costs. I recommended that they transfer them to new KiwiSaver schemes, to access much lower fees, and of course money from the government - $1,000 up front and $10 per week.
There are no employer contributions for Bill since he is self-employed, so his KiwiSaver won’t amount to big money, but it’s all grist to the mill. Mary will do better as her employer will also contribute to her KiwiSaver.
Large, medium or small, there are plenty of things that a KiwiSaver can buy at age 65, such as a new roof, new car, new kitchen, paint the house, a new hip, go on a big trip, or get a caravan (no, not loaned to your children, as it’s probably your turn).
KiwiSaver is locked in till retirement age and you don’t want to have to sell your home to access cash in emergency.
But everyone should have access to emergency cash, so we structured their saving so that they are accessible within 10 days if an emergency occurs.
Not too late
Starting at age 55 with $40,000.
Over $500,000 at age 65.
No, it’s not too late.
Even starting at age 60 and getting to $200,000 by age 65, is way better than nothing.
Supplied by Alan Clarke, financial & retirement adviser, & author. He also writes regular articles for the media and on line.
His second book “The Great NZ Work, Money & Retirement Puzzle” is now available.
You can buy it on line at www.acfs.co.nz
Alan is an independent authorised financial adviser (AFA) FSP26532
His disclosure statement is available on request and free of charge