· that some people don’t have enough money to retire, and so working a little longer is smart
· that if you retire and run low on money after 5 , 10, or 15 years, it is very difficult to go back to work at age 75 or 80
· that inflation is the enemy of people living off their investments.
Do some calculations and get advice. Working an extra 2 years might help you make your savings last another 5 years at the other end.
Might run low ?
Planning ahead is the key. It is way easier to work a little longer now than run out and sweat over money when you are 80.
· You will get joint government super of $28,000 pa
· You want an income in retirement of $1,000 per week or $52,000 pa.
That means you need your savings to produce $24,000 pa. or $2,000 per month.
If you have $340,000 invested at 5% nett return, it will produce $24,000 pa and last 25 years.
At 3% inflation
· $24,000 today after 5 years will be $27,000
· after 10 years it will be $32,000
· after 15 years it will be $37,000
· after 20 years it will be $43,000
$470,000 invested at 5% nett return will produce $24,000 increasing at 3% pa. and will last 25 years.
That’s $130,000 more
The effect of 3% inflation is that you will need $130,000 more savings than if inflation was zero.
But we’ll spend less as we get older
In theory people will spend less as they get older, but along the way , money gets eroded:
- $40,000 to upgrade the car 2 to 3 times
- $10,000 for a new roof
- $3,000 per eye for cataracts
- $18,000 to $25,000 for a new hip or knee
- $10,000 or more for someone in your family in distress
- $10,000 to $50,000 in loans to children that don’t get repaid
- $20,000 to upgrade kitchen
- $10,000 for a new carpet
- $20,000 to alter house to allow for less mobility
- $10,000 to help educate grandchildren
Save more, work longer, or spend less in retirement – your choice.
You can do a lot in retirement in NZ without spending a lot, if you have a car, trailer camper, and use DOC and the Motor Caravan Association facilities.
None the less I would rather have a little too much than too little.
You can do odd jobs or raise cash in retirement
· Eat your house, down trade and release cash.
· Subdivide your property.
· Fruit picking in season.
· Rent out your house and do live in property management.
· Operate a bed and breakfast from your home.
· Use old skills and work from home
· carpenter, cabinetmaker motor mechanic.
· Sewing , remedial teaching
· Consulting , doing locums
· Returning to work part-time for people who bought your farm or business.
· Returning to work part-time for your previous employers.
· Relieving someone who works seven days a week and needs a break.
· Sell your house and buy two units – live in one and rent out the other.
· Alter your garage or shed into a sleep out and collect rent.
· Rent out your spare room.
But But But
Casual and part time work does not usually produce as much income as your current job. Maybe a lot less.
Don’t let inflation ruin your retirement
Allow for inflation in your calculations.
Plan ahead, and make sure you know where your income will come from before you stop work.
If your money runs low later on in retirement , it’s pretty hard to go back to work.
Supplied by Alan Clarke, financial & retirement adviser, & author. His second book is virtually complete, & he also writes regular articles for the media & on line – see www.acfs.co.nz
Alan is an independent authorised financial adviser (AFA) FSP26532 & his disclosure statement is available on request and free of charge.