Hannah McQueen is a chartered accountant, financial advisor, personal finance author and founder of enable.me – financial strategy and coaching.
OPINION: Recent figures from Massey University on what people actually spend in retirement (and therefore need to save) have shocked some – but they shouldn’t.
Financing 20 or 25 years of your life is not an easy task. The fact that it requires thought, planning — and yes, saving and investing — shouldn’t come as a shock. Yet we put it off, not realizing that postponing creates more long-term problems.
This scares us, so we comfort ourselves with a variety of misconceptions about retirement that don’t give us the best chance of preparing:
* Do you want a comfortable retirement? Better save $755,000
* Why saving “enough” could still lead to retirement anxiety
* How much will your retirement lifestyle really cost?
She will be right
“She’ll be right” sums up the classic Kiwi approach to most things – and in my experience, that goes double for our finances.
The belief that everything will be fine in the end without leading to the result is very common – and maybe it will be fine. Or maybe you just have to learn to be okay with what really happens at the end, which is an entirely different perspective, and which is best evidenced by research.
Only 34% of people aged 55 to 64, the decade before retirement, do not have a mortgage. Centrix data indicates that 20% of retirees have a mortgage. People over 65 hold 12% of all residential mortgages, worth about $21 billion.
Given that the pension was never designed to cover housing costs, this doesn’t sound very good, in the end.
I’m just gonna shrink my house
Those who own their homes often emphasize its role in increasing their retirement savings.
We are a nation that loves property and we tend to invest our money in the family nest, in the hope that one day we will sell it and buy something smaller and cheaper to unlock our savings nest egg- retirement.
The problem is that it usually makes less money than you expect, because often homes in the category you’re looking for are searched for by other people like you.
Data from the Financial Services Council suggests it can fund around three years of retirement, which could take you to 68, and it will certainly help, but it’s not a panacea for your retirement savings gap. .
I don’t plan to retire at 65, so I won’t need as much
It is true that the nature of retirement is changing and many more people are working in some capacity in their later years, whether by choice or necessity.
But again, research tells us that most people end up retiring earlier than expected – whether it’s due to ageism in the workforce, layoff, poor health , a change of priorities, a change of mind or something else.
If we’re going to plan, let’s assume that you’ll retire sooner, not later – whatever your intentions. We want to prevent you from retiring earlier than planned, but not having enough to live as long – or as well – as you want.
I owe an inheritance, so I don’t have to worry
I’ve heard this answer a number of times, and still find it deeply uncomfortable. Sure, you might expect to inherit, but drawing the conclusion that you don’t have to do anything to help yourself is problematic.
If your ancestors exhaust their nursing home care resources, what will happen then?
If you need the cash before they get rid of that deadly coil, will you hover near the survival machine or put rat poison in their mush?
Will they still love you when they die? How sure are you of their financial situation?
In my opinion, a legacy should be the cream, not the substance of your financial plans, and allow you to pass it on to the next generation, so that they too can benefit from the efforts of those who came before them.
I just need to help my kids first
I understand as a parent that you want to help your children and given the financial conditions they face, it becomes a priority for many more people. But I’ve said it before, and I’ll say it again, you have to fix your own oxygen mask first.
That’s not to say you can’t or shouldn’t help them, but it shouldn’t compromise your own safety and future, or you might end up depending on them more than they’re willing to help you.
Smart financial plans should allow you to both sort out your retirement and help your children.
I will invest when the market improves
When asset prices fall, they become cheaper. Who likes cheaper prices? Buyers, and when you invest for your retirement, you are a buyer.
If we invest for the long term, we don’t have to worry about the markets having a moment. They will get over it, and we want to join before they do.
When planning for your retirement, time can be your friend or foe, depending on how much you have available, which means the best time to start planning is now.