5. Preparing for change

Welcome to the second wind in life! You might have swapped the office for the home, but there’s so much to do – maybe you’re trying something completely different. It’s not easy learning Russian in your late 50s, or surfing for the first time, but you’re having fun trying! The children have settled down and you’re getting used to being called Grandma and Grandpa. Life’s busy and you’re enjoying every minute of it. Perhaps retirement’s not far off, and you’re making the most of your final working years to ensure you’re going to be OK.

Having been born in the 1940s or early 1950s, with parents who lived through the Depression and World War II, the world today is vastly different from the one in which you first began your working life.

Back then, it was normal to believe that if you worked and paid your taxes, you would be entitled to a pension when you retired. In those years, you had very little chance to put money into superannuation. Now the expectation is that you will need to accumulate money for a comfortable retirement yourself.

Typically, in this financial passage, the second income-earning partner has retired. With very few fixed financial commitments, there is still the opportunity to make substantial contributions to retirement savings. Only a very small proportion of households in this passage still has a home loan.

The objective is to have a savings pool of about 7.5 times your annual income at retirement. This pool will be able to provide you with a retirement income of approximately 60-70% of your end salary.

For New Zealanders approaching retirement, it is advisable to have an understanding of what, if any, benefits they can expect to receive in retirement. It’s important because these benefits are going to play an increasingly important role in your personal financial situation. If you haven’t consulted a financial planner before, it is time to get some expert advice on structuring your financial affairs.

In this financial passage, we recommend that you thoroughly review your entire financial situation. Check your superannuation pot. Check other investments.

Make sure that you are changing your ‘risk profile’. What this means is that in previous passages you probably made investment decisions aimed at getting the most growth out of your capital. There is a chance that the risk in these investments is slightly higher than you can now afford or feel comfortable with.

A professional adviser will be able to help you get the right balance between income and growth investments. You will still need some growth assets to make sure your capital doesn’t run out too early.

We suggest you re-examine your life insurance situation. By this age, life insurance is becoming expensive. You need to work out whether or not your current savings will provide enough income if the main income earner is no longer here.

As in all other passages, it’s important to ensure that your will is up to date and suitable for your current circumstances.

Something else to consider is an enduring power of attorney. This is a formal document giving someone you specify the power to act for you, should you become too ill or incapacitated to make decisions yourself.

You can also set up an enduring power of attorney for your personal care and welfare. This is done using a separate document and can involve a different person.

Although we all hope we will always be able to control our own affairs, we are all vulnerable to illness or accident, so it’s sensible to be prepared. The best advice is to get your affairs in order and then get on with enjoying a wonderful and exciting life.

The other challenge is to identify what you want for your future — things like travel, quiet times or hobbies, as well as replacing what is now satisfied by your job — things like friends and social networks.

What is your future going to offer you? Golf? Bowls? Travel? Further education? Perhaps volunteer work or starting a new business?

A common mistake made by some people approaching retirement is to believe that as long as the money situation is alright, everything else will be too. Studies show successful retirement requires a well thought out lifestyle plan as well as a financial plan.

Above all, the most important requirement for a satisfying retirement is good health and, if you haven’t already, now is a good time to develop a personal healthcare programme.

An important issue is the need for females to be actively involved in financial affairs, as in New Zealand more than 50% of women die single. It’s very frightening for a woman who may not have had much say in, or understanding of, family finances to suddenly have to learn the ropes when she is on her own.

Complete your personal checklist to provide a guide as you seek to ensure there are sufficient savings for a financially independent retirement.

Answer the questions, allocate yourself points as indicated and check your score against the following comments.

A score of 80 or more is excellent – this is a clear indication that your household has a thorough understanding of what is required to have financial security now as well as a financially independent retirement.

A score of 70-80 is good – your answers show what is required for you to be properly prepared as you pass into the next financial passage.

A score less than 70 indicates prompt action is required for you to gain control of your financial affairs. Take the opportunity provided by this review to make changes to the way you look after your money now, and for the future.

Summary

If you scored less than 80, it’s time to take stock or tidy up those loose ends, review all your investments and your retirement pot. Start reading up on superannuation entitlements. Take a look at your ‘risk profile’, insurance arrangements, future goals and the things that you want in a happy and productive retirement. If you’re not sure what to do next, seek advice from a professional financial planner.

Now go to Back to basics for more information about keeping your finances under control.