19 July 2016

Financial planning in retirement is like planning for no other circumstance

Most people look at retirement as the finish line, the point after which financial planning and investing become moot.

The reality is far different.

A significant proportion of baby boomers expect to continue working far beyond 65. The very idea of “retirement” is up in the air, since many folks in their mid-60s cannot afford to quit work and might defer doing so.

We are also all living longer: today a 65-year-old man has a 25% chance of living beyond 94, extending the financial planning horizon to nearly 30 years.

Here are some practical steps to help you approach financial planning in retirement:

1. Do estate planning now

Financial advisors regularly bemoan the fact that their clients operate under the presumption that they will never die. If you have any money at all, you have to have a plan in order to balance what you need to support yourself and what you leave behind.

At a minimum, an estate plan will help you set your “‘planning horizon” and an end goal for whatever wealth you control, that helps you make better choices today.

2. Figure out your income streams

Throughout our working life we have got used to having a paycheck every two or four weeks. Moving into retirement the paycheck stops but the bills don’t.

For most Kiwis New Zealand Super is the cornerstone of their retirement income. Take your time to understand your entitlements, they are set out on the Work and Income website.

If you have a pension or annuity, get a solid idea of your income from that. Now add in any work you continue to do and income from your retirement savings.

3. Be smart about spending

Advisers often toss out broad numbers, such as 80% of pre-retirement income. Your situation could be wildly different.

If you have paid down your mortgage and have no other debt, your cost of living will be driven by health spending, taxes, food, insurance and travel. If you have major debts, however, things change.

4. Review insurance needs

Around 60 or so, most term life policies convert into much more expensive voluntary coverage. You might or might not need disability coverage, if you have it.

As you near 60, the cost of Healthcare Insurance can also increase quite dramatically. A financial advisor can help you make smart choices here.

5. Stay invested

A retirement of 20 – 30 years is a long time. Long enough for a lot of things to change. A conservative investment portfolio, including annuities, can generate income while protecting your wealth from inflation and give you flexibility to respond to any changes in the future.

Financial planning in retirement is like planning for no other circumstance

Financial planning in retirement is like planning for no other circumstance

Retiring on time and living well are not conflicting goals, so long as you maintain a strong sense of the realities of financial planning in retirement. It’s not about “getting by” but effectively using the resources you have to make the best choices along the way.