Retirement investing in New Zealand has always favoured playing it safe .  The conventional wisdom was clear: At 65, switch to conservative investments to protect your nest egg .

But when it comes to applying this traditional view to today’s reality, there’s a sticking point - we're living significantly longer than before, gaining roughly two years of life expectancy every decade .  For a healthy 65-year-old Kiwi today, living into their 90s isn't only possible; it’s increasingly probable .

This dramatic shift in longevity demands a complete rethink of retirement investing . We're no longer planning for 10-15 years of retirement .  We're looking at 25-30 years, or more .

This 'third age' of life (as my late friend and retirement guru Barry LaValley called it) requires a fundamentally different investment approach than what might have worked for our parents' generation .

Consider this scenario: A 65-year-old Kiwi couple retires with $500,000 in savings, plus their mortgage-free home and NZ Superannuation .  Following traditional advice, they move most investments into term deposits and conservative funds .

It seems prudent – until you factor in inflation, increasing living costs, and the reality of a 30-year retirement horizon .

Even with today's improved term deposit rates around 5%... after tax and inflation, many conservative investors are barely keeping pace with rising costs .  This means your purchasing power could be slowly eroding, right when you need it most .

The past decade has delivered a masterclass in why conservative strategies might not be as "safe" as they seem .  Despite multiple market downturns (including a 31% drop in 2020), high inflation rates, and significant interest rate fluctuations, well-diversified and growth-oriented portfolios not only survived but thrived .  Research shows that investors who maintained a higher allocation to growth assets generally ended up with significantly more wealth than those who played it "safe'“ .

Kiwi retirees have a unique advantage that could allow them to take a more growth-oriented approach: NZ Superannuation .  This universal pension provides a reliable income base that many other countries don't offer .  Think of it as your "conservative" allocation – it's essentially a government-backed bond, paying you fortnightly for life .

This system means you may be able to take more investment risk with your savings than you initially thought .  The Super payments can help cover basic living expenses, while your investment portfolio can focus on growing to fund your lifestyle goals and protect against inflation .

Rather than going all-in on conservative investments, consider this three-part approach :

1.      Create a Cash Buffer

Keep 1-2 years of expected withdrawals in cash and short-term fixed interest . This provides security and means you won't be forced to sell growth assets during market downturns .

2.      Include Growth for the Long Game

Consider keeping a significant portion of your remaining portfolio in growth assets . This might feel uncomfortable but remember – you're not just investing for the day you retire, but for potentially decades beyond .

3.      Choose Smart Diversification

Spread your growth investments across NZ shares, international shares, listed commercial property, and a mix of small, value and growth companies .

For example, let’s say you have $500k in retirement savings . Instead of the traditional conservative split, you might consider :

·         $75,000 (15%) in cash instruments for immediate needs

·         $125,000 (25%) in high-quality bonds for medium-term stability

·         $300,000 (60%) in a diversified mix of growth assets

This exposes you to more risk than the traditional approach but has a higher growth potential, and with smart diversification, won’t be as subject to the whims of local or global markets .

There’s another angle to getting your ducks in a row that people don’t often like to think about: The impact of cognitive decline .

An overlooked aspect of retirement planning is preparing for how our decision-making abilities might change as we age .  Research shows that financial decision-making capability typically peaks in our 50s - yet many of us will need to manage our retirement portfolios well into our 80s or 90s .

This presents a critical challenge .  The longer we live, the more complex our financial decisions become .  Yet, our ability to make these decisions may decline just when we need it most .

Conditions like dementia, which affects around 10% of Kiwis over 65 and nearly one-third of those over 85, can severely impact our financial judgement long before we (or our families, in many cases) notice other symptoms .[i]

It’s not just Kiwis at risk . For a global comparison, Britain has 2.38 million citizens with a cognitive impairment .[ii] We aren’t an outlier by any means .

 

This vulnerability makes independent financial advice crucial .  A qualified adviser serves as a cognitive backup system, providing clear-headed analysis when our own judgment might be compromised .  They can help protect against financial exploitation, and maintain investment discipline during market volatility .

The retirement landscape is changing dramatically .  The real risk isn't just that your portfolio might fall 20% in a market downturn – it's that being too conservative might mean running out of money in your later years, or that cognitive decline might impact your decision-making when you're most vulnerable .

For many Kiwi retirees, the path to a more secure retirement involves embracing appropriate levels of growth investment, building a robust yet flexible financial plan, and establishing a trusted relationship with an independent financial adviser early .

With NZ Super providing a stable base, a well-thought-out portfolio strategy, and professional guidance, you can build a retirement plan that doesn't just preserve your wealth – but gives it the best chance to grow and support you throughout your retirement years .

Remember, retirement planning isn't about eliminating all risk – it's about managing the right risks, in the right way .  Sometimes playing it too safe is the riskiest strategy of all - especially when you consider the decades of life (and the twists and turns it brings) that may lie ahead .

·         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. 381.

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

[i] https://figure.nz/chart/EOMYHNrMrMoEpLYV-tPtPhaNClmLlvZTL, https://bpac.org.nz/2020/cognitive.aspx

[ii] https://pubmed.ncbi.nlm.nih.gov/31489532/