13 Aug Don’t Fall Over the Retirement Cliff
In late 2012 the US was preoccupied with an impending ‘fiscal cliff’- a combination of spending cuts and new taxes that had the potential to take $600 billion out of the US economy and push it into recession.
It is possible for New Zealanders to create their own fiscal cliff when they retire without any prior planning.
A surprising number of people have no idea how much income they will receive from NZ Superannuation when they retire – for the record it is $19,475 net per year for a single person living alone and $29,962 for a couple!
Could you make the adjustment from your current income to just NZ Super?
If the answer is no then take some time to work out how much more you need. How will your expenses change when you stop working?
For many people the answer will be ‘not much’. The early stages of retirement can be very expensive as you have the energy and a lot more time to pursue travel and other leisure activities. Your spending could even increase!
Start early to close the gap between NZ Super and the income you would like to retire on. KiwiSaver will go some way to closing the gap but for most it will not be enough.
Most New Zealanders underestimate their longevity. They have a very real chance of outliving their financial resources and being completely dependent on NZ Superannuation.
Paying off your home mortgage early gives you more time to save and invest. A proportion of KiwiSavers plan to use their KiwiSaver lump sum to pay off their mortgage which leaves them with a smaller capital sum with which to generate a lifetime income.
Complete necessary home maintenance before you retire. Update your vehicle and larger appliances. If you plan to downsize be aware that this doesn’t always free up as much equity as you hope. Buying a more modern, insulated home can be expensive unless you are prepared to change location.
Get in early and work with a financial adviser to make a plan for meeting your retirement income goal. The earlier you start the more options you have and the journey is less daunting. Don’t wait until you are on the edge of the cliff and looking over!