Work your money harder for an extra 2 per cent:
A conservative portfolio invested across bonds property and shares is likely to earn (on average) an extra 2 per cent over and above bank rates over the medium- to long-term.
A properly constructed portfolio with extensive diversification should achieve this without too much risk, although you will have to put up with some volatility.
Say $200,000 invested at 2 per cent above bank rates equals $4000 per annum.
That is $4000 pa x 20 years in retirement - an extra $80,000 above bank rates.
Other retirement sources:
* Subdivide your property.
* Go fruit picking in season.
* Rent out your house and do live-in property management.
* Operate a bed and breakfast from your home.
* Use existing skills and work from home, for example carpenter, cabinetmaker, motor mechanic, sewing, remedial teaching, consulting, doing locums, teach one-on-one maths, English or art.
* Return to work part-time for the people who bought your farm or business, or work part-time for your previous employers.
* Manage a business for 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.
* Rent out your spare room.
Downsize but not too soon:
The obvious one is trading down and buying a smaller home, but don't do it too early in retirement.
When downsizing your property to release cash, be careful that real estate agent's fees, lawyers' fees, moving costs, alterations, and renovations do not erode your funds too much.
It is all too common to see the hoped-for $100,000 drift down to $50,000.
Calculate all your costs carefully and get independent professional advice before signing anything.
Move to a cheaper town:
There are many in New Zealand - Kaitaia, Foxton, Wanganui, Oamaru, or Eketahuna.
Not ideal but cash in hand is a whole lot better than staying put and living on the breadline.
Retirement villages:
If you buy a unit in a village and decide five years later that you want out again, the village operator will usually deduct 25 per cent to 30 per cent of the purchase price.
You pay $400,000. You want to leave. They deduct 25 per cent ($100,000). You get $300,000 - ouch!
Now this is not a problem if you don't need to exit, but it is if you might run low on money.
Much later on:
Build a granny flat on your kids' backyard. Maintain flexibility though - the kids might move one day so ensure the unit is easily moved and/or sold - preferably fitted with wheels.
Last resort - reverse mortgages (RAM):
In theory RAMs are a great idea. They allow you to take a reverse mortgage over your house and the mortgage company or bank advances you money every month. A RAM increases quite quickly with compound interest and you may not be able to fall back to a cheaper property later on because you will owe the mortgage company quite a lot of money.
Sell to your children:
A somewhat complex option that can be a win-win all round - you'll have extra cashflow; they'll have an investment.
Older Kiwis have their pride and may not like this option, but think about it - each child probably cost you $100,000 to get from birth to age 21.
No, they don't owe you, but why not work together for the common good.
And if you reverse mortgage instead, they will probably inherit nothing.
Don't be hasty or over-react:
Don't be hasty, and keep any assets you can fall back on up your sleeve for a rainy day.
And get good advice before making any major move or decision.
This article was supplied by Alan Clarke, author of Retire Richer - A Practical Guide For Everyone Aged 25 to 85. Clarke also blogs on www.investandretire.co.nz and is an authorised financial adviser whose disclosure statement is available on request and free of charge.