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By Ben Lavender, AFA/CFPCM , Private Wealth Advisers
As KiwiSaver turns eight years old, many people are starting to see tidy account balances accumulating. By now, you may also be beginning to realise that your KiwiSaver account probably won’t be enough on its own to meet your retirement goals, even after you add in any entitlement you may have to New Zealand Super.
KiwiSaver is a low cost, mass-market solution based on high volume, low value transactions. Whilst it gives investors access to all of the major asset classes (and their returns) it also has restrictions on when you can access those funds, and for many is unlikely to meet their retirement income needs. So what other solutions are available?
To know the solution, you need to understand the problem. Questions such as, ‘How much money will I need by retirement age?’ depend on how much income will you need, and the more difficult question, ‘how long are you likely to live?’ The trends are clear. Through improved healthcare and lifestyle choices New Zealanders are living longer than before and are now much more active in their retirement years, pointing to a need for more funding rather than less.
If you are like many Kiwis, then you may want to purchase an investment property (residential or commercial). The key benefits of this approach come from the ability to borrow a substantial portion of the purchase price (leverage) as well as access to a potentially tax free capital gain on sale. Investors have a physical asset they can touch, smell and repair, with income determined by the rent they receive, the quality of the tenants and the quality of the building itself. Factors such as sales costs and time on market can mean that accessing capital sums may take longer than expected if you wish to avoid a ‘fire sale’, plus you will most likely need to sell the entire asset to release any cash at all.
Business ownership is an option that is significant to many New Zealanders. It is not uncommon for many full time employees to also have a direct interest in a self-sustained business such as a café, retail shop, service industry or online business. The strategy is to secure their regular income from the salaried position (often funding any business shortfall in the early years of establishment) while a spouse or partner aim for business growth - the end goal being a tangible asset, which can later be sold to help fund their retirement.
You could also build your own investment portfolio through regular savings using shares, bonds, listed property and other alternative assets both locally and overseas. Ideally this approach requires a clearly defined strategy, as it is imperative that investors understand the level of risk they are taking on. A professional adviser can certainly assist here, ensuring that the strategy is appropriate for you, that the portfolio is adequately diversified, that it is complimentary to your ‘total’ retirement strategy, and that it is regularly reviewed. As an example, diversification is a great way to minimise losses but it can also minimise gains – it is a fine balancing act
Effective retirement planning is all about providing you with choices, the choice to enjoy your retirement how you want to. No one wants to be in a position after a long and productive working life where they find themselves unable to do the sorts of things they had always promised themselves whether that be to own a flash car, take regular trips to the theatre or a trip to Melbourne. Your job is to enjoy retirement; your adviser’s job is to make sure that happens.