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By Martin Hawes Financial Writer / AFA
I do not like much the word retirement. To me it has connotations of withdrawal and sitting at home hoping that the grandchildren will call. As a stage of life, retirement does not sound attractive.
The first book that I wrote on retirement was called Twenty Good Summers. The idea of Twenty Good Summers came to me on my fiftieth birthday. I spent that day climbing frozen waterfalls in the Remarkables mountain range near Queenstown. When I got to the top of the climb, I looked out at the vast sea of mountains, which are the Southern Alps, and noted all the climbs that I had not yet done and that I would do one day. Then the thought came to me: I am fifty today and I probably will not be able to do this sort of climbing when I am seventy. I only have twenty good summers to do the things that I love – I had better get on with it!
My thoughts on turning fifty were not that we should all go into retirement as soon as possible. Instead I thought that time was slipping away and that we will never be fitter and more able to do things than right now. Therefore, now is the time to wring the changes and get on with whatever it is that you have always wanted to do. In your fifties and sixties it is time to take stock and make plans so that at some point, sooner rather than later, you have the time to enjoy some good summers.
Retirement is changing. Many people do not plan to completely stop work on a given day (say at age 65) but instead may ease back or change their lifestyles and their work earlier. Some take time out in their fifties and sixties for sabbaticals but commit to working far beyond the usual retirement age. Many studies show that people are working longer (e.g. 31% of Americans age 65-69 are still working), although it is unclear whether this is through financial necessity or desire to stay engaged.
The big question in retirement is this: How much is enough? Everyone is worried about having enough – you do not want the money to run out before you do! There are many questions to ask when you are considering whether you have enough to ease back: what value house will you live in? How much will you spend? When will you receive NZ Super and how much will you get? What investment returns should you expect? Will you continue in any kind of work? Do you plan to leave inheritances to the children?
These questions make up the key factors in doing a plan for some kind of retirement. The answer that you give to each will have financial consequences and make it more, or less difficult to go into retirement with confidence that you will have enough money. In fact, you can look at each of these questions and alter them to suit. In my experience, many people are able to start to ease back into a more relaxed lifestyle much earlier than they thought, provided they are prepared to make compromises on one or more of the above factors.
Compromise on two of these factors in particular may help you to be able to start to enjoy some good summers. First to consider for compromise is the house that you live in. Many Kiwis have a lot of house but not very much else. There are people who have very valuable houses but because all of their money is in the house, everything else gets crowded out. A good example of this is a woman I knew some years ago. She had a very valuable house, which she loved, but complained to me that she did not have the money to visit her daughter who lived in Paris. I said to her that being asset rich but cash poor is a choice – she could downsize the house and head off to Paris twice a year if that was what she wanted but she had chosen (consciously or unconsciously) to have the house. We all have to make choices and compromises like this – no one can have everything. This woman could have the house or she could visit her daughter regularly – she can’t have both. Assuming an investment return of 4 per cent per annum, each $100,000 that can be taken out of the house means $4,000 per annum extra income for lifestyle.
Second to consider for compromise is the amount that you will work. Committing to just a small amount of work can make a big difference when you try to make the retirement numbers work. Here is an easy way to think of this: If you are planning to work full time for another five years you could instead decide to work part time for another ten years. Working part time will let you get on with the other things that you have wanted to do. The work that you do in retirement does not have to be the same as what you are doing now. You may do contract work or perhaps use the skills that you have in a completely different industry from the one that you are in now.
Retirement does not have to be binary – one day you are in work and the next you are not. There are many different ways that you may arrange things and as you get into your fifties and sixties the time comes to make some plans.
It may be you have more than twenty good summers left but regardless of the number, it will not increase. Whatever it is that you want to do, don’t put it off longer than you need. Now is the time to enjoy life and make the most of your money.
Martin Hawes is an Authorised Financial Adviser and a disclosure statement is available on request and free of charge, or can be found at www.martinhawes.com. This article is of a general nature and is not personalised financial advice.