‘Save for your retirement’ is an obvious piece of advice (and easier said than done!), but less obvious are the ways you can quickly erode those savings, and jeopardise the comfort of your future old age. We spoke to Financial advisor, Michael Cave about some of the traps that retirees (and the almost retired) can easy fall into:
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You treat your nest egg like an emergency fund
Your comfortable nest egg can look tempting when you hit a financial bump in the road. But whether it’s a leaky roof or knee operation, try your best to find other ways of funding the emergency, and leave your retirement fund intact. “When you dip into your savings, you’re basically stealing from your future self,” says Michael.
Here are his tips on what to do instead:
- Be a miser – avoid spending your savings by being very careful with your money as you get closer to retirement.
- If you can afford it, set up an emergency fund alongside your nest egg account, so can fix the roof when it needs it.
- Keep an emergency credit card – that way you can pay for that new knee without breaking into your retirement savings. Then tighten your belt afterwards to pay it off as quickly as possible.
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You’re too generous with family
You want to do what’s best for your family – whether that’s paying for university fees or the deposit on a house – but don’t be tempted if it will leave you short. While it’s tricky to get a start in life, your children and grandchildren have decades to get their feet under them and pay off debt. You may be just about to stop work – or already have.
That, says Michael, means you’ve earned all the money you can. “It’ll be much harder for you to go back to work or borrow to meet expenses,” he says.
Here’s what to do instead:
- Still living in the big family home? Offer accommodation to your grandchildren studying, or to help them save the deposit for a house.
- Consider letting your grandkids leverage against the value of your property. Providing a guarantee can help them get a loan. Often it involves you pledging the equity in your home as security.
- Buy the home together and set expectations about when you might need to get your money out – that way you’re still putting your money to good use.
- Loan money rather than gift it, at market rates, with a proper agreement for repayment.
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You’re still working but think it’s too late to save
It’s never too late to save, says Michael. Even if you’re nearing 65, or have gone down to part time, the more you can sock away, the better.
Here’s what you can do:
- If you can’t see where to get the extra cash to put away, try tricking yourself. Set up an AP that goes out every payday and into your retirement fund. That way, you’ll never see it, and what you have left is all there is to live on. Two things will happen, says Michel. “One, you’ll grow a nest egg quicker than you thought you could, and two, you’ll naturally tighten your belt, and may not even notice it”.
- Raise your KiwiSaver contributions. If you’re not a member and you haven’t reached 65 yet, you can join. “That way you’re still getting those member tax credits until you’re 69 – that’s an extra $521 for doing nothing,” says Michael.
- Keep working past 65 (lots of people do these days) and keep paying into KiwiSaver. It’s a simple way to increase your savings and will probably earn you more than just putting your money in a bank account. Lots of employers continue their contributions too, even after their employees turn 65.
Guard your nest-egg
If you really don’t think you can resist the temptation to spend (we know it’s hard), or give it to your grandkids, lock your retirement fund up so you can’t touch it.
There are other ways to help the kids or find cash in an emergency – put some thought into keeping a credit card, co-owning a house with a relative or lending your money rather than gifting it. And that, says Michael is all about working toward a comfortable old age, whatever happens.