4 October 2016

Not ready for your gold watch just yet?

Are there smarter ways to think about retirement in the 21st century?



The old model of retirement was inflexible. On a certain day around your 65th birthday, you said goodbye to your workmates and walked out the door with a gold watch, never to return. One day you were a worker; the next day you were a pensioner.

State pensions are still based on this idea. On turning 65 you apply for NZ Super, cash in your KiwiSaver, and live off the proceeds. But is this really a smart way to think about retirement in the 21st century?

The benefits of continuing to work

In fact, there are many lifestyle benefits to continuing in the workforce after reaching the standard retirement age. There are also some compelling financial reasons. Let’s examine them.

From the perspective of lifestyle, there’s ample evidence that those who work after retirement enjoy better health. One study assessed 12,189 people and found that those who continued in a temporary or part-time job experienced fewer major diseases. The benefits were found across a wide range of health conditions including blood pressure, heart disease, cancer, diabetes, lung disease, stroke and psychiatric problems.

It’s undeniable that many of us also enjoy the mental stimulation and camaraderie of the workplace. As long as conditions are not onerous, going to work at least part-time can provide valuable affirmation that our skills are valued. Friendships forged during working life can be maintained even as we shed some of the responsibilities and stresses of employment.

On the flipside of the equation, a growing number of employers are realising the value of older employees. They may be keen to retain people who have priceless institutional knowledge and soft skills they can pass onto the next generation. This can lead to a company culture that’s rewarding and affirming for its older employees.

Financially it's a great idea also

But it’s not just about good health and warm feelings – as valuable as those may be. Staying in the workforce after retirement age also unlocks some cold, hard financial rewards.

The first one is obvious. Earning wages or a salary from a job – even a part-time one – means your household can count on a higher level of income. You can enjoy a decent standard of living and add to your savings even after the age of 65.

If you take advantage of this work-derived income to pay for expensive one-offs, such as house maintenance or appliance purchases, you’ll be able to minimise the chances of financial shock later on, when you’re living off your savings.

The second benefit of continuing to work is that you can delay the time when you start to draw on your retirement savings. This can result in a bigger payout later on.


So what are some of the options?

For instance, there is no law that requires you to turn your KiwiSaver into cash once you turn 65. You can continue to pay into it and watch it grow (although the government will not add any more tax credits after you’re 65). If you don’t need the money immediately, why not leave it intact so you can continue to benefit from potential investment returns?

Or for even better retirement income and lower risk, consider converting part or all of your savings into an account with Lifetime Income. You could immediately start to draw this income at 65, and enjoy a protected level of monthly or fortnightly payments. Let’s say you invest your $200,000 nest egg with Lifetime Income when you’re 65 in return for a protected income of $10,000 per year for the rest of your life.

However, if you decided to work for another three years, and not start drawing from your Lifetime Income investment until you were 68, you could be even better off. Your monthly income could benefit from three extra years of investment growth, which would be locked in for your benefit. So you could end up receiving a regular income that’s even higher than the one you were promised at 65. A case study explaining how Lifetime achieves this can be found here.

There is no one-size-fits-all solution. For some people, the dream is to knock off work once and for all. But for those who enjoy it, part-time or temporary work after 65 can make all the difference to their quality of life.