We all hope and wish for our ideal retirement; spending more time with friends and family, chasing a long-overdue passion project or relaxing on extended overseas holidays.

Whether retirement is in the distant future, just around the corner, or you’re already there, you’ll know how essential it is to plan and prepare – not just for the things you want, but for when things don’t quite go to plan.

While planning for our dream retirement lifestyle is essential for motivation towards a goal, today we’ll discuss how to create a contingency plan that supports your progress even when dealing with the unexpected.


Our current retirement reality in New Zealand

Many of us aren’t on track to retire comfortably, and we don’t have to look very far for evidence to support this assumption:

As of 2023, the average KiwiSaver balance is $28,7781.

  • Based on Massey University’s recent Retirement Expenditure report, a no-frills retirement budget amounts to around $826.26 per week2 for a single living in a big city, or $982.02 for a couple.

It’s easy to see many have a substantial gap to fill to live an even basic ‘no-frills’ retirement, and a recent survey of retirees confirms this. For those who are currently retired:

  • 56% compromise on what they do daily
  • 26% worry about money weekly
  • 41% don’t have the money to do the things they want or to enjoy life3.

Only 50% of the retired population is mortgage free and has enough capital to live comfortably4 – so what can you do to avoid adding to this statistic?


Building a buffer to offset the unexpected

A nest egg that just covers your planned lifestyle is great if your retirement goes to plan but, without an additional buffer, unforeseen costs in retirement can see that nest egg empty at a faster rate than anticipated.

This is supported by a recent Te Ara Ahunga Ora Retirement Commission study that examined the financial impacts of health conditions in retirement. Participants reported the increasing financial and emotional impact of medical expenses as conditions develop in their later years – expenses they had not anticipated and were not included in their financial plans.

As Morgan Housel quotes in her book The Psychology of Money:

“A plan is only useful if it can survive reality. And a future filled with unknowns is everyone’s reality.”

Your wealth creation strategy should not only cover your lifestyle but include a buffer to stay the course should the unexpected happen – whether that’s covering costs for a health issue, remaining secure during a recession, or not having to make critical sacrifices due to inflation.


Preparing For Retirement – Essential Steps

If you’re nearing retirement, start with understanding your current position, where you want to get to and the timeframe you have to get there.

A financial adviser can help you with projection modelling to understand whether your wealth creation strategy leaves you on track towards your target.

If you have a significant savings gap between now and then, there are levers you can pull to fill that gap:

  • If you have a mortgage, make a plan to pay your mortgage faster. Being mortgage free in retirement will significantly decrease your financial stress and open options for other wealth creation avenues.
  • Review your investment portfolio and assess other assets you can leverage. While KiwiSaver is a powerful tool to contribute to your retirement savings, there are other levers such as managed funds and property to help fill your savings gap.
  • If you invest in managed funds, assess whether the growth rate is appropriate for your timeframe.
  • Understand your spending tendencies and behaviour to help build your surplus so you can open up more investment opportunities.

You’ll also need to understand how you’ll access and draw down funds in retirement – which requires a significant mindset shift.

It’s challenging to switch your mindset from accumulation to decumulation, but that’s where an adviser can help – if you’re at retirement age or in retirement, it’s essential that your decumulation strategy is fit for purpose:

  • Assess your cashflow needs while in retirement.
  • Regularly review your investment portfolio and know you don’t need to sell all in one go.
  • You can keep your nest egg invested in different funds and draw down as you need.

A financial adviser can help create a suitable plan that works for your retirement needs.


Protecting Your Financial Legacy

Lastly, don’t let your hard work go to waste – protect your assets with an adequate and suitable protection plan. If you’re nearing retirement, it’s vital that you review your protection plan to ensure your plan doesn’t get derailed if you ever need to take time off work due to illness or injury.

If you’re hoping to leave an inheritance behind for your loved ones to access, ensure your wishes are represented with sound estate planning.

If you secure your investments under a trust structure, review this with your lawyer to ensure that the legal structure serves your needs.

While planning for retirement (and creating a back-up plan for the unexpected) can seem arduous, it is one of the best financial decisions you can make.

It’s also an essential one for many New Zealanders, because wealth in retirement creates options, provides a level of security when faced with the unexpected, and allows room for error should the unknown become your reality.


How we can help

Don’t settle for the minimum. Form a plan that not only allows you to flourish during retirement but also breathe and ride through the unforeseen storms along the way.

If you want to ensure that your insurance and investment strategies are still suitable for your retirement plan, book a review with an AdviceFirst adviser here or get in contact via hello@advicefirst.co.nz or call 0800 438 238.


Disclaimer: This blog is for informational purposes only and does not constitute individual financial advice.

1 Financial Services council
2 New Zealand Retirement Expenditure Guidelines
3 NZ Seniors
4 Retirement commission
5 Te Ara Ahunga Ora Retirement Commission – New research reveals the added cost of growing older.