Think you’ve got your retirement savings sorted? Make sure you’re not making these errors that could make your retirement pretty grim.
Boomers are the generation born from 1946 to 1964. They are a big proportion of NZ’s population, creating a big problem for retirement funding and infrastructure planning. As well as a rapidly draining government superannuation fund and a lack of retirement and medical facilities to care for our aging population, there are also social challenges.
Boomers and their offspring represent a change in attitudes; a bigger reliance on retirement homes, and a situation where many of their adult children do not own their own homes and lack the financial security the Boomers had. The government simply cannot afford to support this generation of retirees the way they have in the past.
As a result, Boomers must be prepared to look after themselves and be financially prepared to support themselves. But, there are fifteen mistakes Boomers can make that can cause even the most well-planned retirement go pear-shaped.
- Rescuing your adult children
Things happen in your kids’ lives. An unexpected car repair, house renovations that ran over- budget, or maybe they want a bigger home. Parents are programmed to want to help out; they’re our kids, after all, we want them to thrive and have a good life. But your kids are grown-ups now, and should be responsible enough to manage on their own. Dipping into your retirement funds to bail them out isn’t in your best interests- or theirs.
- Maintaining a large family home
You needed the big family home when your kids were running around. But now, you don’t need that three-or-four-bedroom home with the quarter-acre section. It needs extra maintenance, the insurance and upkeep is large, and you’re paying more in rates. Yup, it’s hard to leave the family home with all the memories of the whanau growing up; but consider a smaller home with fewer overheads. Even a two bedroom home still has room for the grandkids.
- Still having a mortgage
Retirement savings are for retirement—not paying off a mortgage. If you still have income, aggressively pay it down or consider down-sizing. Your retirement savings shouldn’t be for your mortgage.
- Not sorting out your medical expenses
You don’t know what’s around the corner for your health; but you can prepare for the unexpected. Make sure you have great medical insurance. A recent survey showed that a couple in the mid sixties is likely to spend about NZ$360,000 on medical expenses once retired. Yikes. Can you afford that? If not, get insured now, before you discover conditions that will be deemed pre-existing.
- Not planning ahead for long term care
While the government can help you out with long term care expenses, it’s means tested. Your bank will be drained before they step in. Plan ahead and get long term care insurance, particularly if you have a condition that needs extra care or if you live far from family and friends.
- Not having a savings buffer
If you allow yourself $200 a week spending money, and then your fridge breaks down and you need to buy another, how do you pay for that? Loans will eat away at your savings or income. Make sure you have an emergency fund set aside to manage the catastrophes that will inevitably happen.
- Managing your assets badly
Unless you are a financial advisor or have significant experience managing funds, don’t DIY investing. You could watch all your money disappear down the drain. Get professional advice, understand how much you can take from your funds, when you can take it, and don’t risk all your hard-earned cash.
- Spending too much
When you’re not working, you’ll spend less, right? Less travel costs as there is no commute, no workday lunches out, and you can take time to plan your meals and grocery shopping. Everyone says that, but those long days without work give you time to travel, go shopping, and take up golf. Stick to your budget—find economical ways to still have a wonderful retirement.
- Investing too conservatively
While you don’t want to place your retirement savings on the roulette wheel, nor do you want to have all your cash sitting in the bank doing nothing. You want to have some ‘safe’, low-risk funds that you can access immediately, but also some thoughtfully higher-risk investments. These will (hopefully) make you more than your low-risk funds, but also have enough time to recover from any financial hits.
- Withdrawing your KiwiSaver or superannuation fund too early
Turn 65, quit your job, and withdraw your funds for a big retirement party. Right? Nope. Keep your funds invested until you need them so they can continue earning interest and dividends.
- Not saving for retirement early enough
Get your KiwiSaver started as soon as you get your first job. Compound interest makes a massive difference. Invest $1000 and make $50 that year on interest. The following year, you’ll make $52.50 on $1050. It doesn’t sound like much, but over time it will make you thousands of dollars for no effort.
- Retiring too early
Everyone dreams of quitting your job early, but very few people can afford to. Retiring early can really ruin your financial plans. That compound interest doesn’t have time to really make those big gains, and missing out on a few years of savings can make the later years of your life a lot more frugal.
- Not having enough life insurance
Make sure that if you die, your spouse has enough to have a good life without big financial stress. Funeral costs can be crippling, and if you have debt or a mortgage, there can be significant worries on top of grief and sadness. A good life insurance policy will look after them so they don’t have to worry about money.
- Ignoring inflation
Inflation might only be 1% a year, but it creeps up, and up. Your dollar today will not buy the same amount in the future. Remember 20 cent mixtures? A thing of the past. You need to account for inflation and view it as an extra tax.
- Making terrible decisions
We are human, and as a result, we make awful choices sometimes. Make sure you get good, professional advice, not listening to your sister’s neighbour’s son-in-law or some weird internet stranger. Sam Kodi offers safe, methodical, and thoughtful financial advice, backed by years of experience in planning retirement finances. Contact him today and make sure your retirement isn’t plagued by money worries.