This week we will “create” a single retiree, Brian, who is age 65, and how his retirement to might look.
Brian lives alone as his wife died two years ago. He has three adult children, one in Australia, one in NZ, and one in England. He has quite a good job paying him $70,000 pa, he owns a home in Auckland worth about $800,000 and has $50,000 in his KiwiSaver.
Massey University calculated that single retirees who want to live comfortably will need about $40,000 pa. net.
- they have a debt free home, or live rent free.
- they will invest in a conservative to balanced fund and get 5% nett return
- they will consume 3% more money each year due to inflation
- their money will run out after 30 years
But Brian has only $50,000?
This is what might happen.
Brian will get living alone NZ super of nearly $20,000 pa from age 65.
He has a debt free home on Auckland worth $800,000.
He wants to visit his children annually, and wants to travel a lot too.
Brian’s nett worth is quite good at $850,000 but most of it is tied up in his house.
Of course he could sell his house and move out of Auckland to Tauranga or Hamilton or Whangarei.
He decides he will work another year, save his NZ super plus a bit more, and build his savings up to $100,000.
He then retires and starts to travel. While away, he lets his house for extra income by using on-line booking sites such as www.airbnb.com and www.holidayhouses.co.nz
To avoid confusion (and futile price forecasting), we have not attempted to factor in any future house price rises, but rather have used 2015 values.
After 3 years his $100,000 is pretty much spent so he downsizes by selling his Auckland house for $800,000 and moves to a near new house in Tauranga for $550,000.
That releases $250,000 and so he continues to travel extensively. He is also drawing down on his savings and investments to top up his income, so after 6 to 7 years he runs out of money again.
He is now age 74 with a $550,000 house and not much in savings.
He downsizes again to a unit in Masterton for $300,000 and frees up another $250,000.
He realises his options are shrinking, but also knows he won’t live forever. None the less he trims his travel costs to ensure his money lasts to age 85, the average life expectancy for men over 65 in NZ.
Along the way he has had other costs too such as;
$8,000 to paint his house
$10,000 for varicose veins
$6,000 for hearing aids
$10,000 for a grandchild’s special needs
$1,000 for a new garage door opener
$4,000 log fire and chimney repair
$15,000 for a car upgrade
$5,000 emergency loan to his brother
$30,000 for a campervan - sold for $15,000 ten years later
Simply being alive creates bills.
So likely as not, he will run out of money again by age 85.
What are his options now?
Move to Gisborne or Oamaru to a unit for $125,000.
Or he might move to a granny flat on his son’s property.
Hopefully this move releases another $100,000.
He has had quite a good retirement because he had a house in Auckland.
He worked a bit longer which helped.
He made some extra cash by using Airbnb and HolidayHouses to good effect.
Fortunately he was not a big spender, as he could not afford to be.
He had to budget fairly carefully, get used to watching his money decrease, and move home and town several times.
As and when his money ran low, he might have found it very stressful indeed. However the stress for all of us can be much reduced by:
- getting advice annually – yes, annually
- before and after retirement – yes, before and after
- using a how-long-will-my-money-last calculator
- using a notebook and working out your total assets quarterly
- realising you will not live forever
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.