Ever since I have been a financial adviser specialising in investment advice, a common comment from potential investors is: I do not want to invest in equities because they will probably all turn to custard just as I retire.
When you think about it, your birthday is probably a risk if you intend to retire at age 60 or 65, as you have no control over what markets are doing at that time.
It has become very obvious over the past few years there actually is no such thing as retirement. The majority of my clients are retired, which means in their definition they no longer receive a wage or salary, but as far as retirement goes they have never been busier.
A discussion with a recently retired colleague (who is also a client) found that he has been doing voluntary work for the Department of Conservation in Fiordland, Stewart Island and locally, as well as being involved with the Lions Club in organising a major event.
In between times he and his wife are fitting in visits to family in Nelson and planning an overseas trip. This is typical of many clients who also attend Probus meetings and trips, and do considerable voluntary work such as meals on wheels, home help and gardening for others.
The New Zealand Superannuation in my opinion is about $120-$150 per week short for a married couple. It is after all set at 65% of the average wage. As Grey Power points out, it is based on a single person's average wage, not a married couple's.
Therefore it is important that a person who qualifies for NZ Superannuation should have some form of other income to meet their needs. Many do survive on the pension alone but it does not allow for upgrades of household appliances, cars or holidays.
So what to do about your birthday? You cannot cancel it so you have to reduce the risk of living too long by having a contingency plan.
It is a fact that investing in shares carries some risk and while many upon retirement would like a safe investment, events over the past few years have shown that even guaranteed investments are not safe. You can provide a lump sum for investment by selling the family home and downsizing.
Unfortunately, due to the number of people currently retiring, there are many postwar baby-boomers doing the same thing. It comes back to beginning to save as soon as you can and investing in growth investments.
At retirement you do not have to change your whole investment strategy just because you need supplementary income to top up NZ Superannuation.
There are many shares and listed property companies that provide good income distributions and you have the opportunity for capital gain in their price as well. In addition, there are now several listed share funds where you can spread your risk in equity investing as they own 15 to 20, or more, companies.
Depending on the fund, you can choose special areas such as resources, major companies of the world, Australia and New Zealand, and smaller companies in Australia and New Zealand.
You must always allow for emergency funding by putting aside in a bank call account about two months' spending such that you can then lock in some good interest rate returns on government and corporate bonds for your portfolio fixed-interest portion.
Overseas investment beyond Australia can be done by many New Zealand dollar funds that are mostly PIE and, as mentioned above, your share investment can be very diverse in direct equities or at a lower risk in listed funds with a wider spread.
So, to avoid having to eat only custard when you qualify for the pension, save as much as you are able to before you get to retirement.
• Peter Smith is an authorised and certified financial planner and is the principal of Kepler Group Otago Ltd, Dunedin.
Email: pete@keplergroup.co.nz. A free disclosure statement is available on request.
