For most people, the reason they invest is to prepare themselves for a fruitful retirement. And as you might imagine, this is easier said than done.
The sentiment is right. If you want to live a fruitful retirement, you need to have a sum of capital to live off. But the real question is, how do you do this? And what shouldn't you do?
Retirement, or financial retirement at least, comes down to two main factors:
At what age do you wish to retire
How much income do you want in retirement
At Thrive, we sit down with you and work out how much money you need to actually achieve your goals, and then we work backward from there to formulate a plan.
A goal without a plan is just a wish - Brian Tracy
Unsurprisingly, a lot of people have a gap between how much they want and where they're currently projecting to reach. The first thing that pops into people's heads is that they should save more money every week/fortnight/month.
Although saving as much money as you can is a valuable tool, this is unlikely to close the retirement gap significantly because it is slow, and the real return you get is minimal.
In other words, even if you have $10,000 in savings that accrues an interest rate of 1% in your savings account, you're actually losing money because with inflation at 7% right now, your real return is -6%.
The Reserve Bank of New Zealand has a mandate to keep annual inflation in New Zealand between 1-3% and even then, your money in a savings account isn't making any money and is often losing value.
This happens because as inflation increases, the power of your dollars decreases. I.e. if inflation was 3%, that generally means the price of goods & services will be 3% higher. So, the money you had in your account can actually buy less now than it could in the past.
Don't get us wrong, having savings are good, but seldom can you use it to fill your retirement gap.
The issue people face, and the thing people shouldn't rely on for their retirement is the New Zealand pension. This is never a good retirement plan.
At the time of writing this, Work & Income New Zealand (WINZ) states that it will make fortnightly payments of $1,076.48 for a single person living alone, or $1,634.64 for a couple if both parties qualify in retirement.
To put this in perspective, the cost of living in New Zealand is estimated to be between $3,000 - $4,000 per month for one person in a major city. Let's calculate the affordability.
The annual cost of living for a single person is assumed to be about $42,000 per year
The Government pension for a single person is assumed at roughly $27,988.48 per annum
If this were the case, relying solely on the government pension for your source of income, you would be about $14,012 short per year in retirement. That is a scary reality for a lot of people in New Zealand.
That shortfall is a direct result of not putting a plan in place to produce steady streams of passive income or building your wealth. If not done properly, you will need to rely on the government pension and as you can see, you run the risk of running negative.
Without a coherent investment plan, every day New Zealanders are left stabbing in the dark to find a way to fund their retirement.
If relying on the government to support you leaves you $14,000 short per year, you will need to find alternate ways to not only survive but thrive in your non-working years.
The best investment to make is subjective to your personal financial position, but for a lot of people, property investment remains one of the key asset classes for retirement investing.
Having a property portfolio that produces capital gain over the long term gives investors the ability to use this equity as part of their retirement plan.
The equity can be used as a lump sum which is complimentary to the government money that you should receive.
All in all, a diversified investment portfolio allows investors much more financial freedom beyond the minimum threshold and allows people to live comfortable lives. Not just survive, but thrive.
What do we do?
We help Kiwis build wealth through property investment. Our advisors will take the time to understand your individual needs and recommend suitable investment properties to help you build wealth and set up your retirement.
What does this look like?
Who are we right for?
How much does it cost?
How do I start?
