19 October 2018
Buckets of money for retirement
A brand new round of Lifetime seminars kicks off this week with an illustrious line-up of speakers including financial commentator and advisor Liz Koh, financial author and advisor Martin Hawes, and economist and media commentator Shamubeel Eaqub.
If you’re in Wellington, Tauranga, Auckland, or Christchurch we hope you’ll join us. Come and get financially inspired, informed and ready for retirement. For free!
As well as the seminars, Lifetime is also offering Buckets of Money for Retirement - a free workshop led by Liz Koh.
For those who don’t know Liz, she is the author of Your Money Personality; Unlock the Secret to a Rich and Happy Life, and runs her own successful financial planning company called Moneymax. Her mission is to provide the best possible advice on how to manage money, increase wealth and to encourage people to enjoy their lives to the absolute maximum.
For Buckets of Money Liz has developed an e-book of eight exercises that she’ll go through with willing workshoppers.
We had a chat to her last week and got a sneak preview of what you can expect…
“Number 1, we’ll be planning”, says Liz.
“From 65, most people should plan to live for at least 25 years. That’s a hang of a long time for most people so we’ll be breaking your retirement into chunks of time to work out what sort of things you want to do.
I like to think about it as three stages. The first stage is active, where you ‘live it up’. This can be as long or as short as you want it to be, depending on circumstances, fitness and health.
Then there’s the ‘fix it up’ stage where health issues might start to arise, your house needs maintenance, and perhaps a new car is required.
And then there’s the final ‘winding down’ stage and it’s really important to think about this early on. Where do you want to be in the last years of your life and how much money will you need?
Money can only be spent once so it’s important not to blow it all in the live it up stage!
Then we’ll talk assets.
Where is your wealth? What have you got to fund all these things you want to do? You‘ve got a house and some investments? Look at the relative values.
Most New Zealanders have most of their wealth tied up in their house and that can be a problem. You don’t want to be asset rich and cash poor. You can either downsize and cash up, or consider a reverse mortgage to tap into the equity in your home.
Income will be next.
Other than your investments where is your retirement income going to come from?
Everyone gets NZ Super. And some people have other pensions, private or employer-related. Are there any other government benefits you’re likely to be entitled to?
Perhaps you’ll need to consider part-time employment to keep you going?
Time for those money buckets
We’ll be working out how much you need to live on and whether you’ll have enough before you pull the plug on work. It’s really important to do this BEFORE you retire. You’ve got to be able to live before you play!
So we’ll be breaking down daily living expenses into 3 categories, or as I like to call them, money buckets. These are known expenses - the stuff you have no choice over; household expenses – food and utilities, stuff you can control; and personal expenses - the fun stuff.
With personal expenses we’ll be making sure each person in the relationship is accounted for. You shouldn’t have to have permission from someone else to buy a new pair of shoes. If you know you’ve got $100 a week to spend on whatever you want, it gives you the freedom, and permission to do just that. I find some older people who spend money out of a joint account sometimes get in trouble for doing so and then feel bad, they shouldn’t.
Mind the gap
Then we’ll cross check your total expenditure on Daily Living Expenses against your fortnightly and annual income in Exercise Three and figure out whether there’s a gap and how much of your retirement savings will be required to fill it.
A Lifetime annuity or a regular payment from your bank account to transaction account could cover that shortfall. And then you know the rest can be used for lump sums!
Who is your money for?
Money is an enabler, it enables you to enjoy life but one of the biggest problems I see is retirees underspending their money. You need to make a plan for how to decumulate your capital. That will help take away what I see in some older people as a fear of spending.
Who do you want to spend your money? If you live till 90 how much money do you want left in your bank account? Most people these days don’t plan on leaving a big bequest. Talk to your children and find out what their expectations are, if any.
And if you do want to leave a big bequest for your kids, realize this will mean you have less to spend in your retirement.
The best thing you can do for your kids is help them buy their own home. Then leave them to it.
Now for the fun part. We’ll recalculate our income gap, allocate how much money we need to cover it and then go back to Exercise 1 and look at the different things we can do.
Finally we’ll set up our investment buckets!
You need money for the short term, mid term and long term.
Make sure you’ve got money when you need it and that for the short term you’ve got money maturing from your term deposits regularly.
It’s very common for older people to have one big term deposit and hope to live off the interest. This is silly – you’ll end up living in poverty. It’s usually much better to divide your money into smaller deposits that mature every few months and to use the capital as well as the interest.
You’ve got to make a plan to spend your money and remove any distinction between capital and return on capital. At the end of the day, it’s just money.”
How much can you safely spend in retirement?
Find out with the Retirement Planning Calculator