Money

11 ways to make retirement income last as long as you do

The nagging worry of running out of money in retirement can keep you up at night. With a little planning and foresight, these 10 actionable strategies can ensure your money lasts as long as you do.

By Alex Brooks

In New Zealand, men aged 50 today are likely to live another 31.8 years, while women still have another 34.8 years- according to Ageing and Life Expectancy New Zealand.

There is no way around the fact that longer and healthier lives cost more money. Yet most of us don't plan our future retirement income half as well as we plan our holidays.

Retirees are tasked with the complex issue of working out how to spread their life savings in a way that delivers enough income to cover both expected and unexpected living expenses over an uncertain timeframe.

New Zealand is a beautiful place to retire - especially if you’re prepared. Many retirees benefit from NZ Superannuation, which provides a basic income for eligible New Zealanders aged 65 and over, but it's great to have a nest-egg built up as well.

If you own your home mortgage-free and are comfortable living a modest lifestyle, retiring at 65 can be a realistic and stress-free option for many Kiwis.

AS well as NZ Super, some people may also have savings through KiwiSaver, private investments, or other retirement plans, which can offer more financial flexibility in later life.

But when there is a big gap between how much money you want to retire with and your current nest egg, here are 10 ways to beef up your retirement income.

Step 1: improve your financial know-how

Many people don’t take the time to fully understand the power of compound interest and investing.

We usually fail to see the long term benefits of putting aside money into our KiwiSaver (or other accounts) but the compound interest can build up significantly by the time retirement rolls around. In addition to this, working to understand how to invest for long term wealth and financial security is fantastic.

It puts things in perspective to know that investment returns during retirement can make up the largest amount of income generated in your life!

So start learning and understanding. You don't have to become an expert all at once, but it's worth getting to know a few basics like:

Step 2: find a gap in your spending to invest

Do you know how much you spend every year just to live?

Retired people living on fixed incomes tend to know exactly what they spend and when the expense needs to be paid.

If you don't already have a basic household budget, it's worth starting one.

Once you have a handle on your monthly or yearly spending needs, take a look and see where it's possible to cut back.

If you can look at your expenses and find 5% or even just 3% or 1% to cut back on, then use that money to make extra contributions to your KiwiSaver, pay down your mortgage or invest.

If you get really good at finding this gap between spending needs and investment dreams, try cutting back your expenses by another 5% to see if you can create bigger and better investment dreams.

Find ways to reduce your everyday living costs by reading:

Step 3: scamproof your finances

Scams are real, and older people are statistically more likely to fall victim to them.

It's worth understanding the range of scams committed across different technology platforms and ensure you know how to spot them and secure your accounts if you suspect you have unwittingly fallen victim. However, if you do ever fall victim to a scam- know that it's not your fault and don't ever be too embarrassed to report it to NetSafe.

Make sure you understand how digital payment technologies work - including facial recognition technology. These can help keep your finances secure.

Step 4: start bucketing your spending and investments

Once you retire and begin drawing income from your nest egg, you need both capital growth to ensure your savings last the distance and access to liquid assets to spend on living expenses.

Many of us need to plan for big expenses like home renovations (especially if we want to age in place), a big trip to see family who live overseas or interstate or buy a new car.

One way to stretch your savings - and work out how to pay for bigger one-off expenses - is to use a bucket strategy that establishes different funds (or buckets) of money with different objectives.

Your short-term bucket contains liquid investments (such as cash and term deposits) for regular pension payments, while the medium-term bucket aims for some capital growth to top up the short-term bucket for when you need that new car or holiday.

The long-term bucket can be invested to create long-term capital growth and reduce any risk your retirement savings will run out.

Step 5: comprehend whether you might be an 'unretiree'  

Kiwis are rapidly reinventing what it means to retire - it's no longer hanging up your suit and tie to go and play lawn bowls, but might be a mix of travel, part-time work and volunteering.

Deciding to retire no longer means you never want to work again. Many people take some time off before deciding to return to the workforce in a different way – or even in a different industry.

Although full-time work is an option, most retirees find part-time or casual work – or even consulting or project work – a more enjoyable way to retire.

Surprising new research is showing there are health and financial benefits to doing some work as we get older.

Working for longer - though maybe not in your 'every day' job but trying something new - can allow you to increase your cash reserves ahead of full retirement. Some of the largest financial benefits of additional years of work are delaying de-accumulating your retirement savings.

With technology changing the nature of work, there is less need to do physically demanding manual work.

You can also read about How much it pays to put off retirement another 5 years.

You might also consider options like:

Step 6: NZ Super eligibility and other benefits

New Zealand citizens are entitled to amazing benefits like health care and welfare safety nets like NZ Super.

We also have a complex taxation system (which helps pays for these benefits) and plenty of bureaucratic hoops to jump through to apply.

Read more about which benefits you might be missing out on: 12 amazing benefits for older Kiwis and 6 cards all Kiwis should apply to have in their wallet. Not to mention 11 impressive things you might not know your SuperGold Card can do.

In many cases, it may also be worth paying to get general or personalised financial advice which can often save you thousands in the long run.

Step 7: your home holds the key to retirement planning

It's no secret that New Zealand property is expensive and more people are retiring or entering retirement with a large mortgage.

For many New Zealanders, their home is their most valuable asset- and it can play a crucial role in your retirement strategy. If you’ve paid off your mortgage, living costs drop significantly, making it much easier to live comfortably on NZ Super and any savings or investments you’ve built up.

But even if you’re still paying off your home or you’re asset-rich and cash-poor, there are smart ways to unlock the value in your property. Downsizing to a smaller, more affordable home can free up capital to boost your retirement income or pay off debts. If you're keen to stay put, a home equity release (also known as a reverse mortgage) could provide access to funds while allowing you to remain in your home — though it’s important to understand the long-term implications and seek advice.

Step 8: think about your future care, health and housing needs

As you get older, your home needs to provide more than a roof over your head - it might need to be close to family who can care for you or allow you to lock up and leave so you can travel easily.

Every time you sell up and move house, you lose money in real estate fees and moving expenses- this can add up in big cities like Auckland or Christchurch.

Most of us think we all grow old and end up in a residential aged care - sometimes called a nursing home - but the reality is that most Kiwis will use formal and informal care in their own home instead because there are so few aged care beds available. We may also need to plan for these costs in advance of knowing whether we may need it.

For information about residential care options and costs as we grow older, read this breakdown on paying for residential care.

Downsizing - or rightsizing - our home and accommodation as we age is an important part of planning our retirement income. It's important to research what's right for you.

Step 9: understand annuities and 'peace of mind' retirement income strategies

If long-term financial peace of mind is a key goal in retirement, an annuity product could be the best way for you to turn your savings into a retirement income.

Annuities (sometimes also called a 'lifetime pension') provide a guaranteed preset income stream you can use to ensure your regular expenses – like rates and insurance – are covered.

With your regular expenses taken care of, you can use your remaining savings for unexpected costs or things like travel or a new car.

You can choose whether you want the payments to last for:

  • A fixed number of years
  • Your life expectancy, or
  • The rest of your life.

Step 10: advance plan your legacy, financial and health needs

Many retirees are keen to leave a financial legacy for their children, grandchildren or other family members. Some want to leave something for their favourite charity.

If you’re worried about whether your retirement savings will last the distance, reducing the amount you plan to leave your beneficiaries is a simple way to stretch your retirement dollars.

Most children would prefer their parents enjoy their retirement years rather than going without to leave a substantial amount behind for their beneficiaries.

At Citro, we call this "advanced planning" and it helps avoid things like elder abuse or leaving your loved ones to bicker and fight about your estate should unthinkable things happen such as a sudden death.

This article reflects the views and experience of the author and not necessarily the views of Citro. It contains general information only and is not intended to influence readers’ decisions about any financial products or investments. Readers’ personal circumstances have not been taken into account and they should always seek their own professional financial and taxation advice that takes into account their personal circumstances before making any financial decisions.

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