Canny View: Retirement should be a time to enjoy life, without a creeping source of anxiety

Nick Stewart says financial stress can be a huge burden, and the best way to get around it is to start your journey early, and create a plan for success.

If Stewart Group was a person, we would be firmly in the middle of the typical accumulation phase of life. Having just celebrated our 37th anniversary in business, our minds are always on retirement… not ours (we’re only just getting started!) but on what people ought to know when planning for this stage in life.

Retirement often seems like a far-off “someday”, until all of a sudden it comes upon us. There are a few things you need to assess before you get into planning for the third age.

Firstly, how far away is retirement for you; are you planning on retiring at 65, or earlier, or later? Secondly (though by no means less important), how much will you realistically need to live comfortably? What kind of lifestyle do you want to lead, and how much will you need to support this?

There are many “rules of thumb” about retirement planning, but no magic number. You can start by thinking about your current costs and which of these will remain by retirement. Having an idea of your annual costs will help you conceptualise how much you would need to live for x number of years once you stop working. Given the longer lifespans we typically enjoy in this modern age, it may have to stretch further than you think.

Let’s assume the average life can be broken down into three phases; 25 years as a child/young adult learning the ropes, then 40 years earning steadily – and from age 65, you could have 35+ years consuming what was saved in 40.

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If you wait until you’re 50 to start, that only gives you 15 years to amass enough for almost 40 years of drawdown. It’s a near-impossible task, which is why most folk park it ‘til next year… and next year… and rinse, and repeat. Or – they plan to hunker down on NZ Super.

According to the latest Massey Retirement Expenditure Guidelines (2023), there are significant gaps between expenditure and what retired households receive from the pension; if you were a one-person household living a no-frills lifestyle in a city, your weekly expenditures in 2023 outweighed NZ Super income by $329.89 (up from 2022′s $318.13).

A recent article from Consumer NZ goes further to describe challenges for those preparing to retire. For example, if you do not own a home, you will need to allow for a budget to cover rental prices. TradeMe’s last rental index put the average Hawke’s Bay rental at $630, with Auckland at $660 and Southland the stand out by far at $430. Median weekly rent nationwide in December was marked at $620.

This will likely see Super going towards rent or paying off a lingering mortgage, with more than half of retired mortgagees spending over 80 per cent on housing costs in 2022. This leaves other costs, be they bills or leisure, to be picked up by KiwiSaver or other savings or investment earnings. Additionally, we will not see people with fully realised KiwiSaver funds (funds where people have contributed their entire working lives) turning 65 until 2054.

It will be easier to put a little away now and grow your wealth slowly, than to come up with a larger lump later in life. This is why KiwiSaver is a good idea, particularly for those who are able to start earlier in their working life and/or contribute significantly.

A well-rounded investment portfolio can be another great way to make sure your money is working hard for you... as opposed to leaving all of your savings in the bank, where inflation and fees over time will eat away at your hard-earned money. Risk in investment is tempered by time. The sooner you start, the better.

Other ways you can get yourself in a good position include paying down debt where you can to minimise bills in retirement, and having robust insurance coverage to help take the pain out of unforeseen events. Again, cover is typically easier to shore up while you’re younger.

The sooner you start planning, the less you have to ponder the outcome. Financial stress can be a huge burden, and the best way to get around it is to start your journey early, and create a plan for success that you can stick to. Retirement should be a time to slow down and enjoy life, not a creeping source of anxiety as you age.

As with all financial planning, the best approach can be determined by sitting down with the professionals. A chat with a trusted fiduciary about your unique situation and goals is a great place to start.

Before closing the article, I would like to extend my immense gratitude to everyone who has been an integral part of us reaching 37 years in business; our people, team, and our community. With your continued support, we look forward to delivering our services for many more.

· Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a Financial Adviser and CEO at Stewart Group, a Hawke’s Bay-based CEFEX & BCorp certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions. Article no. 339.

· This article was written with support from Dimensional Fund Advisors. The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz