From your 20s-60s, organising your financial life really pays off.
Money is an emotional topic for us all – and for good reason. You work hard for it in the first place, and your hopes and dreams for your future, and that of your family, are inherently linked to it.
Retirement savings don’t just appear out of nowhere on your last day of work. There are several actions you can take in each decade of your life to help ensure you are set up to enjoy your later years.
Imagine your retirement fund is a tree that you plant at a young age and tend to over the years so that, by the time you finally retire, there’s plenty of shade to relax under and lots of delicious fruit to pick.
With the ups and downs of the current market, it’s more important now than ever to put a sound plan in place to get you to where you want to go. Below are our top tips for all life stages, to help you retire comfortably at the end of your working life.
20s
Cash in on compound growth
Your 20s bring great potential and opportunity for getting yourself on the path to financial security.
Invest in yourself
Now is the time to build strong foundations. Take advantage of personal growth opportunities, professional development courses and skills training. Whether you attended university or learnt a trade, improving your skills and knowledge can increase your earning potential for the years to come.
Start an emergency fund
Set aside enough to live on for three to six months as an emergency fund to cover you in case of unexpected bills or a period of not being able to work. It’s great to avoid those high interest costs if you have to borrow to fund the emergency.
Open a KiwiSaver account
You can choose to contribute 3 per cent, 4 per cent, 6 per cent, 8 per cent or 10 per cent of your pay. If you’re looking to buy your first home, now is a great time to increase your contributions as much as you can. This can be just from your pay, or from a mix of your pay and your employer’s contributions. Starting now will ensure you benefit from the powerful effects of compounding interest over your lifetime.
Milford has excellent digital advice tools available to help you choose the right Milford KiwiSaver Plan fund for your goals.
Avoid consumer debt
Even if you love it, only buy what you can afford to pay for in full. Set up a savings account for those items you can’t yet afford rather than using a credit card or a loan to finance it. Avoiding interest on top of the original purchase price is one of the best gifts you can give your future self.
Budget
Complete a budget and allocate money to each of your expenses so that you know exactly where you are with your finances. There are great tools to help with this such as those available at sorted.org.nz.
30s
Stay (or get) focused
Eliminate debt
Aside from your mortgage, your 30s are your chance to finish paying off any student loans and personal debt. Start by picking off the debt with the highest interest first to achieve the biggest gains.
House purchase
While renting may be a good housing solution for many people, owning a home and paying down a mortgage can have long-term benefits. Many people consider buying their first home in their 30s. Having a KiwiSaver account can help with this major life step and in some circumstances you can withdraw your KiwiSaver savings for a first home purchase.
Save for your children
If you have, or plan to have children, now is a good time to put some money aside for their future. An Investment Fund with a long-term time horizon can be a good way to save for this. With a little more financial stability under your feet, your 30s are your time to shine, and to really set yourself up for your future.
40s
Broadening your investments
Pay down your mortgage
Your mortgage is likely to be your largest debt. As you earn more, consider increasing the repayments or reducing the term remaining on the mortgage. Sometimes small adjustments in the amount or frequency of payments can reduce the length of the mortgage, and the interest to pay, significantly.
Grow your investment portfolio
Consider adding new investments for long-term return. Adding property or share investments can boost your retirement funds.
Ramp up KiwiSaver contributions
You may now be in a position where you can increase your KiwiSaver contributions - even a small increase will make a difference to your retirement savings. Consider whether the fund you’re in will need to change to meet your needs, particularly if there’s been a shift in your savings goals.
Start money conversations with your children
Setting up an Investment Fund or KiwiSaver Plan for your young ones is one of the best ways to ensure they start planning for a healthy financial future and develop a positive relationship with money. You can start an Investment Fund with Milford for as little as $1,000.
Discuss finances with your parents
It’s important to make sure your parents have a financial plan in place. While not an easy conversation to have, getting things in place now will pay off in the long run.
50s
Protect your assets
Firm up retirement goals
Now is the time to hone your retirement plans. Think about the lifestyle you would like to lead and how you would like to spend your time, and plan for the expenses that will be involved now.
At the same time, add up your likely sources of retirement income. These may include New Zealand Superannuation, a private superannuation, rental property income or trust income. Any shortfall needs to be covered from your retirement savings, such as your KiwiSaver account. Seek professional advice to find out if you are on track and if not, what action you can take to achieve your retirement goals.
Reduce risk
If you have been exclusively focused on investment growth for the past three decades, it may be worth looking at the risk levels on your KiwiSaver and other investments if retirement is getting close.
Estate planning
Estate planning should be considered throughout your life stages and it’s always a good idea to ensure your Will is up to date. While checking on your Will, why not consider setting up an Enduring Power of Attorney that can be acted upon should you become incapacitated. Appropriate professional advice is important here.
Diversify
It may also be wise to diversify a property portfolio if you have built one of these – because an adverse event such as a natural disaster or property crash could affect your retirement plans. Again, seek professional advice to choose a good mix of assets so that all your eggs are not in one basket.
60s & onwards
Enjoy your retirement
Plan for retirement
When will you retire, and will you have enough income to maintain your lifestyle? Adjust your assets so this is sorted before you retire.
Complete a budget
How are your savings looking? Will you be able to maintain your lifestyle and fund your retirement goals? At some point during your retirement, you are likely to need to draw down on your savings. Seek advice on how much you can withdraw and how this fits in with your other goals such as leaving money to family or charities.
Talk to family about long-term care
Have that important conversation with your family about your wishes in the event you can no longer care for yourself. Let them know what you would like to have happen and budget for the likely costs. A financial adviser will help you assess how these potential costs fit into your financial plan.
Enjoy your retirement
You’ve worked hard and you’ve got there! Now is the time to enjoy the fruits of your planning, saving and investing.
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Disclaimer: This article is intended to provide you with general information only. It does not take into account your objectives, financial situation or needs. Milford Funds Limited is the issuer of the Milford KiwiSaver Plan and Milford Investment Funds. Please read the relevant Milford Product Disclosure Statement at milfordasset.com. Before investing you may wish to seek financial advice. For more information about our financial advice services visit milfordasset.com/getting-advice. Past performance is not a reliable indicator of future performance.
