By Nick Stewart
100th article and two years for our ‘Canny View’ column. We've come a long way, to say the least. For the 100th article, I thought I would write about the 100-year life because we are living longer than ever and there is now an increased possibility that one might live to 100.
Statistics New Zealand’s most recent figures show that the average life expectancy at 65 is 19.6 years for males and 21.7 for females. That means if you make it to 65, you’re projected to, on average, live to 84-86 years old. Christine Ormrod, leader of the group of actuaries who authored the report Income Streaming in Retirement said, "The average lifespan for a 65-year-old woman today is expected to be 89 years, but one in five is expected to live until at least 95. For a man of the same age, the average lifespan is 86, with one in five expected to live until at least 93."
Personally, I think this will only get better with the medical advancements in the coming years and the idea of living to 100 is exciting! More time to spend with your family. More time for hobbies you love. More time to just live, grow, and learn.
One of the problems with living to 100 though is that it costs money! Higher life expectancies mean longer retirements and people face the risk of outliving their money.
The welcoming change however is the traditional concept of retirement is becoming outdated. Instead of planning to slow down at 65, many of us are contemplating the prospect of working longer, changing careers and travelling more.
This new retirement landscape with increased longevity demands a fresh approach to thinking about and planning for your golden years. It’s important to estimate how much money you will want for a comfortable retirement and where that money will come from.
With so many factors to consider, here is a quick run-down of some key retirement topics you might want to think about.
1. How long will you live?
According to Dan Solin – who works with evidence-based advisers in the USA – there’s no definitive answer to this one. You can run the most sophisticated financial planning software in existence, but here’s one fact no financial adviser can tell their clients: When they are going to die. One can discuss probabilities, but an adviser can’t give them certainty they won’t outlive their money.
2. How much money are you going to spend?
In order to effectively prepare, it’s important to first consider how much money you’ll need each year during your retirement. There are several approaches out there to determine this amount, but at the end of the day, the dollar figure you think you can get by on in retirement is a personal choice. To help you predict what this amount we’ve outlined a few tips below:
· For a quick approach, experts estimate that you’ll likely need 80% of your pre-retirement income if you wish to maintain a similar but more modest living standard in your retirement. Of course, you have to consider inflation, too.
· Remember to consider where your retirement income will come from. For example, if you determine that your target retirement income is $85,000 per year and that $35,000 will come from NZ Super based on the current rates (Of course, you will need to have faith in NZ Super that it will be available when you retire, as it is today), the other $48,000 must be accounted for elsewhere — either from investments, your KiwiSaver, and/or other sources.
· And consider the great unknowns. The Prime Minister was recently quoted as saying there is no plan to increase the superannuation age beyond 65 years and that New Zealand is different to many other countries, as we can keep working and get the pension. But policies change and it's hard to know what the future holds for the NZ Super.
3. How can you optimise your investments?
The need for investment management doesn’t end upon retirement. In many ways, it’s a new beginning. If you worked closely with a financial adviser during your working years to save for retirement, continue to work with one going forward.
There’s no one-size-fits-all approach to optimising your investments but managing your investments for retirement can be broken down into three primary objectives – liquidity, growth and income. Diversification provides the protection and ensures that all your objectives are met no matter what happens with the markets.
The best approach is determined by sitting down with a financial adviser who can analyse your situation and present appropriate options for your consideration as a part of your wealth management strategy.
Nick Stewart is an Authorised Financial Adviser, trustee and CEO at Stewart Group – a Hawke's Bay-based CEFEX certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver solutions.
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 an Authorised 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
