Top five tips for retirees
September 28, 2020
There is no doubt we're in topsy-turvy times. But it's not just our everyday lives that have been tipped upside down, the economy and financial markets have been on a rollercoaster too, leaving many of us concerned about our finances.
We asked financial adviser Liz Koh for her top tips on riding out the COVID-19 financial storm. The good news is her advice for retirees remains largely unchanged, so if you've got a robust investment plan in place already, there should be little need to rush out and make changes.
Liz Koh's five top tips for retirees:
Make sure you have enough money in the bank (in cash and term deposits) to cover your income top-up and lump sum spending for the next five years. That way you don't need to touch your other investments.
Don't try and live on your investment return. These days, retirees need to use their capital as well as the return on the capital. Add up the sum total of your investments and work out how much of the total you would like to have left when you are in your nineties. The difference between these two numbers is how much you get to spend or give away during your retirement. Then plan when you are going to spend it and on what.
Money that you don't need to spend for five years or more should be invested in a diversified portfolio which, by its nature, will go up and down in value but with a higher annualised return than bank deposits. At present, we are seeing an extreme drop in value, however your portfolio will recover in time, providing it is diversified. Diversification is the key to reducing risk. If you are diversified and you have enough money in the bank to last five years, then you should have nothing to worry about when the market drops.
Remember that there is a difference between a loss and a drop in value. A drop in value becomes a loss when you sell at a low price. Whatever happens to prices, you still have the same quantity of investment units (shares, or units in a managed fund). The value will be restored when the unit price rises. If you sell some units when prices drop, you may make a loss on the units you sell and you will also have less units in hand when prices start to rise again so you will miss out on some gains.
For your income top-up, the Lifetime Retirement Income annuity works extremely well in times of volatility. You have a guaranteed payment each fortnight regardless of what happens to investment markets, so you have certainty and peace of mind. This product was designed for exactly these circumstances.
Liz Koh is one of New Zealand's most well known financial commentators, and as an Authorised Financial Adviser, Liz has helped hundreds of Kiwis prepare for life when the pay cheque stops. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free of charge by calling 0800 273 847.
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