Retirement can look very different from the way we imagined it. Perhaps the savings aren’t quite as substantial as hoped, the cost of living has increased, or an unexpected expense has put pressure on the household budget. Sometimes the problem isn’t dramatic at all; there simply isn’t quite enough coming in each month to maintain the lifestyle you had planned.
Running short of money doesn’t necessarily mean making one enormous change. There are usually several possibilities worth considering, depending on your circumstances, your health, your home, your skills and how much flexibility you have. Some ideas may be completely unsuitable, while another might provide just enough breathing room to make the numbers work.
A little more time can go a long way
If you’re approaching retirement and the numbers aren’t quite adding up, working for another year or two can have a surprisingly large effect. You continue earning while potentially adding to your savings, while your retirement savings need to support you for fewer years. Even a relatively short extension to your working life can therefore have an effect well beyond the additional pay packets.
For someone already retired, returning to work doesn’t have to mean going back to a 40-hour week. A few hours of casual work, helping another business during busy periods or taking on occasional employment could provide useful additional income without taking over your retirement.
Seasonal work is another possibility, particularly for someone who enjoys being active and meeting people. Fruit picking, helping at a garden centre, working during a busy tourist season or taking temporary work over summer can bring in extra money while providing a reason to get out of the house and interact with others.
Put your existing skills to work
Retirement doesn’t make years of experience disappear. Someone who spent decades as a mechanic, teacher, administrator, artist or tradesperson may have skills other people are willing to pay for, even if full-time employment no longer appeals.
Sewing, gardening, repairs, bookkeeping, craft work and one-on-one lessons are just some possibilities. There may even be opportunities to work from home or provide occasional services to former employers or businesses familiar with your abilities. The aim isn’t necessarily to recreate your old career; it is to consider whether something you already know how to do could provide a useful source of income.
Could your home work harder?
For many retirees, the largest asset is the family home, but there may be ways to make better use of it without selling. A spare bedroom could be rented to a boarder, while a garage, workshop or other unused space might have income-producing potential. Some people may even consider renting out their home and moving into a less expensive property.
There are practical, financial and personal considerations with any of these arrangements, including privacy, tenancy obligations, tax and insurance. They won’t suit everyone, but housing is such a significant part of most household budgets it can be worth asking whether your current arrangement is still working as well as it could.
Downsizing can change the numbers
For homeowners, downsizing can potentially release a substantial amount of capital as well as reduce ongoing costs. A smaller property may mean lower rates, maintenance, insurance, heating and other household expenses, although the difference between the sale price of one home and the purchase price of another isn’t necessarily money you can simply put in the bank.
Agent’s fees, legal costs, moving expenses, renovations and the cost of preparing a new home can all reduce the amount left over. There is another cost which is harder to put on a spreadsheet: moving is stressful, particularly when it means leaving a familiar home, neighbourhood and community. If downsizing is being considered, it is worth working through the complete financial picture and considering the emotional upheaval before deciding how much the potential gain is worth.
Could a cheaper location help?
Housing costs can vary enormously between parts of New Zealand, so moving to a less expensive town or region may be another possibility. It might even bring them closer to family or into a community where everyday life is less expensive.
A cheaper location doesn’t automatically mean a cheaper life, however. Transport, healthcare, groceries, rates, access to friends and family and the activities you enjoy all need to be considered. Moving somewhere unfamiliar simply because property is cheaper may not produce the lifestyle or savings you expected, but for someone already considering a change of location, the financial difference could be significant.
Look carefully at your investments
If your savings and investments are no longer providing enough income, it may be worth reviewing how your money is structured. Money held in bank accounts or term deposits provide relatively predictable returns, while a diversified investment portfolio may offer greater long-term growth potential, although with more risk. Even a modest difference in the return earned on a substantial sum can make a meaningful difference over many years, so it may be worth getting advice before deciding where your money should sit.
Taking more risk simply because money is running short isn’t automatically the answer either. How much you have, how much you need to withdraw, how long the money may need to last and how comfortable you are with fluctuations in value all matter. Independent financial advice can help if you are considering a substantial change to your investments.
What if the house is your main source of wealth?
For some homeowners, most of their wealth is tied up in their property, yet moving isn’t something they want to do. Equity-release products, including reverse mortgages, can allow eligible homeowners to access some of the value in their home while continuing to live there. These arrangements can provide useful flexibility, but interest and fees can reduce the equity remaining in the property over time. Anyone considering this route needs to understand the long-term implications and should seek independent advice before making a significant commitment.
Start with the gap, not the solution
When money starts feeling tight, it can be tempting to jump straight to a solution. Before doing so, work out how large the problem actually is. A shortfall of $50 a week calls for a very different response from a situation where savings are likely to run out within a few years.
It’s important to avoid making a major financial or lifestyle decision simply because the situation feels urgent. Give yourself time to look at the possibilities, understand the costs and consider what you are actually trying to achieve. The aim isn’t necessarily to find one dramatic solution, but to find a combination of changes which gives you enough income, security and flexibility to enjoy the retirement you have worked towards.