For most of us, retirement is seen as the light at the end of the tunnel. A chance to do all those ‘what ifs’ and ‘maybes’ we talked about throughout our working lives. Wining and dining, holidays, getting the boat you’ve always wanted.
But for many New Zealanders, the reality is very different. Without a solid retirement plan in place, the money often just isn’t there to make retirement dreams come true. In today’s blog, we break down the different options for investing money while you’re still working so you can enjoy the retirement you want.
KiwiSaver
When it comes to putting aside retirement funds, KiwiSaver is a great way to achieve a decent nest egg no matter what time of your working life you start.
Each time you get paid you can choose to put 3, 4, 6, 8 or 10% into your KiwiSaver and your employer will also contribute. Once a year, the government will give you 50 cents for each dollar you put in, up to a maximum of $521. Make sure you invest at least $1042 to be eligible for the full amount.
We highly recommend getting some advice about your KiwiSaver provider rather than just sticking with a default provider that you automatically get put into.
Not all KiwiSaver providers are created equal. There are often major differences in both fees and returns so it’s worth doing your research.
Firstly, you’ll want to decide if you put your money into a growth fund (higher risk but often greater returns over time). Or, if you’re nearing retirement age, you may want to stick with a conservative fund (lower risk but generally lower returns).
Always make sure you look closely at what you’re paying the fund to manage your money as many KiwiSaver providers charge high fees.
You can change KiwiSaver provider or fund at any time and this is often a good idea to take advantage of lower fees and greater returns. Remember, you’re in control of your KiwiSaver so never feel like you have to settle with what you’ve got.
Index Funds
Investing in Index funds is a great way to get a taste of the share market and is a great approach for people who want to diversify and avoid putting all their eggs in one basket.
Index funds are unique in that they group together multiple businesses in which you purchase shares. This means that if one business fails, you are unlikely to make a significant loss as your investment is bolstered by the other companies in the fund.
If you’re not sure where to start, a simple investment platform like Sharesies or SmartShares is a good way to dip your toes into purchasing your first index funds with low capital investment required.
Shares
If you want to go beyond index funds, you can invest in individual businesses. This means that instead of diversifying your investment in shares, you’re putting them into one company.
The risks are greater but the rewards often are too. We recommend getting a good share broker if you’re going down this route and this is something that our financial advice team can support you with.
Property
Having a freehold property once you hit retirement age is one of the most valuable assets you can achieve. It means that you’re not lumbered with paying rent or mortgage at a time in your life when you have less income.
Getting your mortgage paid off before you hit retirement age is a worthwhile goal for security. You’ll still need to cover rates, insurance and utilities so ensure that your retirement savings plan covers this.
Another solid option for retirement is investing in rental properties. You’ll want to make sure that the rental income you receive from any rental home covers the mortgage and expenses.
If you can manage to purchase a property without a mortgage, that’s even better. It means that the rental return does not need to go towards paying the debt and therefore becomes an income for you.
Many Kiwi investors by rental properties in their younger years with the goal of paying off the mortgage before they retire in order to earn a regular income.
Have a plan
No matter which way you go with your investing, or if you diversify and try all of these options, a solid plan for your retirement is essential.
You’ll need to work out exactly how much money you’ll have come retirement and what income you’ll be receiving from superannuation once you retire.
You’ll need to think about what your mandatory expenses are as well as what kind of lifestyle you’d like to have in retirement then invest and get advice accordingly.
At NZ Advice Group we’re passionate about helping our clients in their twilight years to get ahead and would love to talk to you about putting in place a plan for the future.