27 September 2018

Financial mistakes to avoid in your 60s

Regardless of your earlier financial choices, the financial decisions you make in your 60s will have a profound effect on the rest of your life.

To help you stay on the right track, here are five financial mistakes to avoid in the run up to retirement.


1. Being asset rich and cash poor


Longer life expectancy, increased property values, and the rising cost of living means that an increasing number of Kiwis are finding they’re “asset rich but cash poor”. These people typically have valuable assets (usually their own home), but limited cash on hand or other meaningful income to give them the choices, security, and freedom that their wealth should provide.

This issue can usually be avoided by:

  • Conducting some thorough retirement planning, and/or;
  • Downsizing to a smaller home sooner rather than later. This can unlock the value held in the family home and reduce expenses such as upkeep, rates, and insurance. 

Interestingly, many residential property investors are also in the position of being asset rich and cash poor. This is because the very low yield on such properties doesn’t provide enough of an income relative to the value tied up in the property – especially after paying associated expenses. Once again, this can be rectified or avoided by exploring other investment options.


2. Not understanding risks or taking steps to protect your assets


If you die without a will, the law says who is entitled to share in your estate. For example:

  • Retired or retiring couples with children who aren’t aware that if one of them dies without a will, the spouse will only receive the personal chattels plus $155,000 (with interest) and a third of anything that’s left. Everything else held in the name of the deceased is divided among the children. If any of the children have passed away, their children receive their share, and so on for each generation.
  • Individuals, such as widows or widowers without children who aren’t aware that if they die without a will, everything they own will become the property of the Government!

Not only that, but have you considered what will happen if you become injured or mentally incapacitated, such as through illness or an accident? This is what an enduring power of attorney is for.

Spending some time understanding the risks you face, and planning for them, can offer you peace of mind knowing that your loved ones will be taken care of when you pass away or if you’re incapacitated.


3. The retirement splurge


There is absolutely nothing wrong with splurging some of the funds you’ve sacrificed and worked to accumulate for your ‘golden years’. However, all too often people spend their KiwiSaver funds to do something like landscape the garden, buy a new car, or take a holiday somewhere before they’ve calculated the implications for their retirement – and whether the spending truly reflected their retirement goals (and other goals) they wanted to achieve.

As is often the case, some simple planning, including identifying what your life and financial goals really are, will go a long way to preventing this issue. You can either do this yourself or have a professional financial adviser assist you. Whatever you do, it’s a great idea to avoid splurging funds before you’ve done the analysis to ensure your spending decisions are wise.


4. Being too trusting of family and 'friends'


You don’t have to search far to come across stories about people who are supposed to be enjoying the best years of their lives in retirement, but instead placed too much trust in someone close to them.

In other cases of misplaced trust, the older person, possibly after many years of having their estate in order, is persuaded to change their will and/or enduring power of attorney to put all power in the hands of someone who wants to take advantage of them.

Both instances are often termed ‘financial abuse of the elderly’ and are a lot more common that many think.  Ensure you think through all matters carefully, take appropriate advice from legal and financial specialists, and then implement what’s needed.


5. Keeping too much of your savings in the bank without good reason


For those nearing retirement, or already retired, holding too much in savings accounts and term deposits won't make the funds last as long as other investments. Worse still, term deposits and savings accounts aren't guaranteed by the government anymore, so your funds probably aren't even as safe as you think.


The bottom line


What you do in your 60s will have a big impact on how you spend your golden years. Through this decade, you’ll be doing well to avoid the financial mistakes of:

1. Being asset rich and cash poor

2. Not understanding risks and taking steps to protect your assets

3. The retirement splurge

4. Being too trusting of family and friends

5. Keeping too much of your savings in the bank without good reason


This article has been contributed by Joseph Darby, CEO and authorised financial adviser at Milestone Direct Ltd. This article first appeared on the Milestone Direct website. The views and opinion expressed in this article are those of Joseph Darby and not necessarily those of Milestone Direct Ltd. The views and opinions expressed in this article are intended to be of a general nature and do not constitute a personalised advice for an individual client. A disclosure statement relating to Joseph Darby is available, on request and free of charge.


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