Watching the recent Olympics makes one proud to be a New Zealander. Once again, as a nation, we punched well above our weight and achieved one of the highest medal tallies per head of population. Our congratulations to those who received a gold, silver or bronze medal. However, what about those who didn’t manage to achieve a medal? Were they second rate or did they just not fire on the day?
Every one of our Olympic athletes is world class and had to qualify to be there. However, the difference between winning a medal and coming somewhere else in the finals is often very small and is normally not attributable to one single factor. The same applies to our retirement savings. We have all heard the phrase “it’s not how much we earn that matters, but what we do with that money that will make the difference.” It is often the small things that make the big difference between winning or losing financially in achieving your retirement goals. Review the checklist below to see whether you are making those little mistakes that will prevent you winning financially.
- Starting too late: Someone who starts saving for retirement at age 25 and saves $1,200 a year will have much more than a 45 year old who starts saving $2,400 a year for 20 years. Both will have contributed the same initial amount of money but the 25 year old will have received the real benefit of the power of compounding interest.
- Not joining KiwiSaver now: Government and employer contributions can make a huge difference to one’s retirement nest egg. The sooner one starts, the more they are likely to accumulate.
- Only saving the minimum: We should be saving at least 10% of our income to achieve a comfortable retirement. Only saving the minimum ie 3% (from 1 April 2013) and matching employer contributions is like an Olympic athlete thinking they only have to train every second or third day to win the gold.
- Investing too conservatively: This will result in underperformance of your investment portfolio and will make your savings more vulnerable to inflation.
- Know your numbers: Know exactly how much you need to have invested by retirement date. Not knowing this means you don’t have a target in sight so you don’t know how you are tracking.
- Failing to regularly review your savings: This is like an Olympian not talking to their coach. Regular reviews will help you fine tune your investments, refocus you on what is important and help to identify mistakes before they become too serious.
- Taking big risks: Although it is important to not be overly conservative, it is equally important to not gamble your hard-earned savings by punting on one single investment or having all your money in one type of investment. This is what happened when people became overly confident and placed all their money into finance companies or property-based schemes such as Blue Chip.
- Failing to lock money away: Often we need to protect ourselves from our own lack of personal discipline. It is not prudent to have all your money locked away but for many of us, it is probably a good idea to have a reasonable percentage of our retirement savings sitting in KiwiSaver so we are not tempted to access it for a new car, holiday or house upgrade.
- Relying on the spouse for retirement: Too often, we rely upon the spouse for the inbuilt retirement plan. However, if the higher income earning spouse dies early or there is a matrimonial separation then the lower earning or non-earning party may have little or no retirement savings accumulated. This risk can be minimised via sufficient insurance cover and appropriate asset protection and estate planning.
- Believing there will always be a liveable pension via New Zealand Superannuation: Can you live comfortably on today’s NZ Super payment of $18,143 for a single person or $27,913 for a couple? There is already discussion around increasing the pension to age 67 and whether it will be at the same percentage of the average wage. One would assume that as our population ages, the actual amount we will receive relative to the average wage will decrease. Therefore, it is prudent to assume that over time, we will need to fund more of our retirement ourselves and rely less on the government of the day.
Achieving your financial retirement goals is never easy and obstacles come to deter us every year. The team at Milestone is trained, as is an Olympic coach, to assess your current situation and work with you to harness your potential to achieve your financial goals.