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PE R S ONAL FINANC E
Invest For Your Age In association with Kiwibank In the world of investing, one size doesn’t fit all. Brenda Ward talks to financial advisers Martin Hawes and Amy Wilkes, financial educator Lisa Dudson, and Kiwibank’s Anthony Huggins about smart money strategies for each stage of your life.
INVESTING IS A LIFELONG PROCESS. Are you
taking the right financial steps for your stage of life? From the child given his first pocket money to the globetrotting retiree spending her nest-egg, there are sensible financial steps you need to take for each age and stage of your life. Each person brings their own lifestyle, earnings and money personality to their investment. However there are two broad trends, accumulation and decumulation. That is, you spend half of your life growing your money and buying assets, and then almost as long in retirement, spending those savings.
Martin Hawes Financial Adviser and Author Martin Hawes is the chairman of the Summer KiwiSaver Investment Committee. He is also an Authorised Financial Adviser throughout New Zealand.
Amy Wilkes, AFA and Director of Wealth Works Wilkes is the founder of this award-winning financial planning firm. She has extensive experience within the financial services industry as an Authorised Financial Adviser.
Investment’s not just about retirement. It’s about having the financial freedom to live the life you want. So, the earlier you start, the better off you’ll be later in life, and the earlier you’ll reach financial freedom. As a general rule, financial advisers suggest taking on more risk – ‘growth’ assets – early in life, with that level of risk declining by middle age and drastically reduced when you’re no longer working. It doesn’t matter how little you have to spare; compound interest will help your money magically grow. As American former broker and adviser Tim Maverick says: “Start investing yesterday. Today is already too late.”
Lisa Dudson, Financial educator Investor, author, entrepreneur and seminar speaker, Dudson is recognised as one of New Zealand’s leading businesspeople and educators in the property and financial sector.
Anthony Huggins Kiwibank Wealth Adviser and AFA Huggins has spent almost 20 years in banking, with 17 years in the adviser industry. He enjoys helping people invest to achieve their financial and lifestyle goals.
This article is intended as general information only. It does not take into account your financial situation and goals and is not personal advice. For advice about your particular circumstances please see your financial adviser.
Kiwibank was created to help Kiwis achieve financial independence. No matter where you are on the investment journey, we have products, services and expertise to help.
YO U R INV E STIN G
The Family Years: 35-55 HIT THE MORTGAGE It’s a matter of personal preference how you do it, but no one wants to be retiring at 65 with a mortgage. Hawes recommends paying off your mortgage as early as you can by increasing payments or paying lump sums if you have a windfall.
DIVERSIFY YOUR INVESTMENTS Wilkes suggests you continue investing over this period of your working life. “If you put everything into the mortgage and only then start investing for retirement, it’s going to be very hard.” Look at a mix of investments, to spread your risk. They could include a rental property, an investment fund, shares, fixed interest, bonds and KiwiSaver. You can still invest in growth assets, but that depends on your comfort level with risk, says Dudson.
Kiwibank’s Huggins says just paying a small amount more than the required payment can take years off your mortgage. Beware the ‘bigger house syndrome’ and don’t keep upgrading to more expensive homes, says Hawes. Dudson notes that if you’re repaying a 7 per cent mortgage with your after-tax money, you’d have to earn 10 per cent before tax on an investment to be better off.
EDUCATION FUND Whether your child wants to go to university or not, Wilkes suggests you may want to start an education fund, to help them at that expensive stage of their lives. Some people put their funds into shares for the children to take over when they’re older. Kiwibank’s Huggins says that putting aside a small amount each week from birth can make a big difference to the final balance.
KIDS AT HOME When your child gets their first real job, ask them to start paying board, says Dudson. She suggests a sum of NZ$50 to NZ$150 per week. “If you don’t want to charge them, charge them anyway, but save that money for their first home deposit. It’s not about the money; it’s about the habit,” she says. If young people don’t pay board, chances are, they will just spend that money.
Kiwibank was created to help Kiwis achieve financial independence. No matter where you are on the investment journey, we have products, services and expertise to help.
PHOTOGRAPHER: Wendy Fenwick
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This is the level of risk suggested by our experts, but every person is different.
CASE STUDY: Nicola Webster, 43 UPDATE YOUR WILL AND INSURANCES All the experts suggest you review your insurances and your will regularly. When you no longer have kids at home or a mortgage, your needs are different from when you first took out cover.
Nicola Webster just might be a superwoman. She’s raising four children, including a set of twins, and when she’s not burning the midnight oil in the couple’s business, Coast, you’ll find her at their lifestyle block in Coatesville, north of Auckland, knocking the garden into shape or tending to the animals. Webster sits back on one of Coast’s outdoor bean bags at their Ponsonby store, and laughs as she confesses her life is “a major juggle” – but she loves it. Raised on a farm in the South Island, Webster says she soon learnt the value of money, doing chores for her parents and then training and selling ponies to pay for her university studies in commerce.
GET RETIREMENT-READY Once your mortgage is paid off, your needs change, say the experts. Throw any spare money into your KiwiSaver account, invest, and cut spending, if you can. “If you wait until you’re 55 to start saving, you’re never going to make it, or it’s going to be really, really hard,” says Wilkes. “The earlier you start, the easier it can be.” Hawes says it’s not investment return that will count in the long run; it’s how much you put aside each week. To see how you're tracking towards retirement visit kiwiwealth.co.nz and try Future You, an online tool that helps you see the potential gap in your retirement income, and shows you how by making changes now, you could make a big difference in the future. Kiwibank Limited is a distributor of the Kiwi Wealth KiwiSaver Scheme (Scheme). Kiwibank is not an issuer of the Scheme. Kiwi Wealth Limited is the Issuer and Manager of the Scheme and is a related company of Kiwibank Limited. The Product Disclosure Statement for the Scheme is available at kiwiwealth.co.nz
“We had an environment where there was a lot of hard work. And that’s what I’ve enjoyed about the lifestyle block [in Coatesville], being outside on the mower, spraying, getting back to riding.” Webster met her husband Alex on her OE in the Caymans, later moving with him to London and Hong Kong, where she worked for an investment bank. On their return, they got married, bought a house, started the business, and had twins – all in one year. “If we could survive that, we could survive most things!” In Hong Kong, they’d been immersed in the hype of the share markets of the early 2000s, and became investors. “In Hong Kong, everyone invested in stocks and shares. At lunchtime, all the secretaries would run out to buy their shares.” But back in New Zealand, she found that dinner-party conversations were all about
property investing. However, they decided to put building the Coast brand at the top of their list. They stayed in their small home, where all four children were born, but eventually couldn’t fit any longer so moved into a larger, rented villa while they let out their own house. They moved to Coatesville four years ago. They’ve invested primarily in their business, which has been “pretty intense” at times, says Webster. She’s also worked right through, despite the house filling with children. “There was a lot of working at night and from home. “We live within a lifestyle that we’re happy with, that’s not extravagant. We like to put a focus on experiences with our family and practise considered consumerism – which is part of the Coast ethos of buying wellmade products that last.” Starting a business was quite high-risk, Webster says, “but we’ve been focused and continued to invest in the brand while staying true to our original vision of building a luxury lifestyle brand.” Retirement feels a long way away now, but Webster expects the couple will sell the business one day. “I think I’ll be working for a long time. I enjoy what I do. If you have your own business, you’ve got to be passionate about it.” She says she loves giving their children a chance to enjoy the country lifestyle, find out where their food comes from, and experience the outdoors. “Wealth is about more than driving a smart car, it’s your chosen lifestyle – the country, friends, and family, and developing passions and interests. Hopefully, that’s something that the kids understand and cherish.” – Brenda Ward
YO U R INV E STIN G
The Three Stages of Retirement
All Go, Slow Go, No Go...
You may be surprised to know that rather than falling, your expenses in retirement start high, drop, and then climb again, says Martin Hawes – which makes it harder to work out how much you really need.
WORDS BY Martin Hawes AFA, Financial Writer
44 JuNO / WINTER 2017
PE R S ONAL FINANC E
THERE’S A FINANCIAL PLANNING rule of thumb saying that in retirement you’re likely to spend 75 per cent of what you spent before retirement. It works on the basis that many of your before-retirement costs will be significantly lower (such as transport and clothing), and is meant to help you plan the income you need in retirement.
we do before retirement, but this takes no account of the ups and downs of retirement expenditure.
However, in my view, this 75 per cent rule is a blunt instrument that has little use. It takes no account of the different stages of retirement and the spending patterns within each stage. Yes, it may be true that across the whole period of retirement we spend 75 per cent of what
For most people, retirement now lasts for such a long time that it would be quite wrong to think of it as just one phase. In fact, it’s possible to divide retirement into three stages, each with its own planning challenges.
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One hundred years ago, life expectancy was about 50 years. This left little or no time for most people to have any sort of retirement, and certainly not the decades of golden years that we now expect.
WINTER 2017 / JuNO 45