Leaving money or lifestyle on the table is the big choice facing those heading into retirement age and Martin Hawes, one of New Zealand’s best-known experts on personal finance, says he’s seen changes in how Kiwis approach their retirement years in recent years.
“I am surprised at the rapid change in NZ regarding how many people are now happy to let the cheque to the undertaker bounce and go out on their last dollar,” says Martin.
“People are choosing to spend their capital because they are not confident their investment returns will be high enough to fund the lifestyle they want.”
Unravelling this tricky topic has led to the launch of Hawes’ latest book – Cracking Open the Nest Egg (Upstart Press), which deals with the topic of decumulation.
“Retirement is hard,” says Hawes. “The social adjustment is tricky enough, but making sure you have enough money to last is the hardest (and scariest) part of all.”
Working out how to achieve a regular retirement income is much more difficult than it used to be. Historically low interest rates plus longer life expectancy means the old method of parking a nest egg in a savings account and living off the interest is no longer an option.
For retirees, the stakes become very high and they can’t afford to make a big mistake as there simply isn’t enough time to accumulate more money.
Hawes believes New Zealanders have become more clued up about saving for retirement since the advent of Kiwi Saver, but there is not a lot of help for people once they reach this stage. As a result most people underspend, especially in early retirement. The book details the challenge of achieving the lifestyle you had imagined for yourself in retirement and not running out of money.
“As time marches on we become less able to do stuff (in later retirement years) and there is an Inevitable decrease in activity and therefore spending. This, in my experience, seems to occur naturally but people may look back with regret thinking of things they might have wanted to do being left undone.”
The right investment strategy is particularly pressing with the current inflationary pressures facing those on fixed incomes.
Hawes guides readers step-by-step through the process, showing how to safely create a regular income that will last a lifetime and explaining how to plan for the decumulation of a retirement savings nest egg.
“I have long had an interest in this decumulation phase. My interest was piqued because there are technical aspects to making sure a portfolio is well invested, but there are also behavioural issues which mean people do not always make the best decisions for themselves which impacts the lifestyle they are able to achieve in retirement.”
Cracking Open the Nest Egg by Martin Hawes, $39.99 RRP (Upstart Press), on sale Thursday 7 April