Retirement – Relaxing Golden Years or a Frightening Prospect?
Are you looking forward too or dreading retirement? Back in the heady days of the booming eighties it was not untypical to hear people talking about retiring in their fifties. What with the global recession, easy credit and uncertainty in the property and share markets it’s more a case of whether we can ever retire, especially with us all living longer these days. So how might you survive in retirement?
Counting on your NZ Super? Yeah Right! The theory sounds good (it’s supposed to stay at two-thirds of the average ordinary time earnings after tax) and it doesn’t look too bad on the surface but even if you have paid off your mortgage and don’t have any rent to pay, when you start to work out a basic budget there isn’t going to be much left over for those trips to see the family overseas. Remember too that earnings can reduce your super by up to 70%. But will it still exist in future years given compulsory Kiwisaver?
Kiwisaver. Dream on! Yes I agree a great incentive for us all to save but again, I cannot help thinking there are going to be lots of disappointed savers around in 10 or 20 years. According to the Kiwisaver calculator on Sorted, an individual of 45 on $50,000 pa will end up with $75,000 at age 65 in today’s dollar value. Invest that in a savings account at 4% and you end up with $3,000 before tax per year which will just about pay your rates bill!
Selling Your Business. This is where you wished you had faced head-on the stress and hassle of taking on employees and grown your business rather than staying small for an easier life! After all, even a smaller business can be a challenge and if you’re going to put your life and soul into a business you may as well maximise your returns! To achieve a reasonable lump sum, say $500,000, you’ll need to be making profits after market-rate remuneration of between $125,000 to $150,000 so start work now!
Not Selling Your Business. This option could be good at both ends of the scale. If you’ve worked hard and grown your business to the point where you’ve reliable employees or managers you can reduce your hours gradually to the point of total retirement leaving others to do the worrying. If you’ve stayed small, perhaps you can scale down the business, working part-time just keeping your best customers. This option is more practical for many business owners.
Property Investment v Savings. The debate rages on and on. For a while yet at least, capital gains from property are generally tax free and losses are not yet ring-fenced but as we all know, it is not for everyone. Tax, fees and inflation eat away at savings which means it’s difficult to stay ahead and the current low interest rates mean that, as with KiwiSaver, the amount you need to have saved continues to grow.
Superannuation Funds. Both have advantages and disadvantages. You’re locked in for a pre-defined period and suffer tax on the way in and whilst invested but on the other hand the benefits are tax-free and your investments are pooled with other investors, allowing you to make investments impossible for an individual investor. In addition, they provide financial discipline as you commit to make regular savings and being locked-in prevents you from withdrawing funds for that big OE!
Move Down-market Property-Wise. I’ve heard this put forward many times, but I’m not sure how practical this really is. To realise enough cash (even if your mortgage is fully paid off in these days of the banks offering 30 year mortgages to those in their sixties) just how far down does one have to go? Would you want to live in an area where the houses are cheap when you’re going to be spending all day there? Where will the grandchildren stay when they visit?
Living Off Your Children. I’ve already told my four children where I want them to live so I can enjoy a perpetual summer in retirement. In response, my younger old son says he won’t be telling me where he lives! So much for that idea!
In practice, unless you do sell your business a combination of things might do the trick. It’s a shame that NZ Super is going to go as that with a top-up from savings and/or part-time earnings would probably do, at least in the early stages of retirement when you’re still active. As always, the key to success is to start planning for retirement now! Get in touch with us if you would like advice on planning for your retirement.