Financial Decisions

How Have You Enjoyed Your ‘Practice Retirement’?

For many of us, these last weeks have been remarkably similar to being retired. We didn’t have the regular commute and familiar routine of the working week, we were at home 24/7, and, for many, our regular income has been severely curtailed.

What a great opportunity to give some serious thought to what life in your actual retirement is going to be like!

Research shows that the earlier you start planning for your retirement (ideally in your forties), the better prepared you will be, financially and mentally, for what is one of the biggest lifestyle changes you’ll ever face.

The most obvious of these (but surprisingly not necessarily the most significant), is your finances.

Your Money in Retirement
The three major stressors that affect many people as they enter retirement are their health, their relationships, and their financial security. And of these three, financial security is the one that many feel they have less knowledge about and less control over.

Your financial health will play a very important role in your overall retirement happiness and it is valuable to think about how you view money, investing, and your “financial comfort.”

Regardless of whether you have a great deal of it or believe that you don’t have enough, money can be a source of stress. This may arise from the belief that money is a reflection of success or failure in life. In fact, having money is often confused with “being happy”— “the more money I have, the happier I will be.”

Worries about money in retirement are often compounded by the fact that many people don’t have a clear picture of how much money they will actually need for the sort of retirement they envisage. This is where talking to a qualified financial planner can be very helpful – and the earlier you do this the better.

The Role Money Plays in Retirement
During our working lives, money is often a source of pride and a way to keep score of our growing success in earning and saving.

But when you reach retirement, money has a different emotional impact:
* • Money equals security. This is your ability to sleep at night and to know that regardless of what happens, you are going to be all right.
* • Money dictates lifestyle. Your spending tends to reflect the income you have. In retirement, your ability to do some of the things that you want to do is tied to whether you can afford it.
* • Money provides independence. As you get older, independence becomes more of a challenge and a goal. Your financial resources can dictate how much independence you really have.
* • Money helps family. Whether it is your ability to help a family member in need, provide caregiving for a spouse or distribute your assets as part of your estate, your money will dictate whether you can be there for your family.
* • Money creates a legacy. When you think about the causes that are important to you, the community you wish to help, or the legacy you wish to leave your family, the strength of your financial resources will determine the legacy you create.

Defining ‘Financial Comfort’ In Retirement
We define financial comfort as living with a financial situation that does not cause you undue stress on a daily basis!

This means:
* • You can do the things you want to do given the lifestyle you have created.
* • You can handle unexpected challenges to your financial situation.
* • You spend your money in a way that is congruent with your core values.

Most people work to achieve an income that will allow them to be financially comfortable. However, there isn’t one definition of financial comfort; it means different things to different people. And while many people can easily identify what being uncomfortable financially means to them, they have not really clarified what they mean by “financial comfort.”

The key to financial comfort isn’t how much money you have, it is how you feel about your financial situation. And what impacts how you feel about your financial situation is your definition of financial security, how that definition translates into what you want your money to do for you, how much control you feel you have over your financial situation, and how much you know about making your money work for you.

This information is taken from Cambridge Partners’ book ‘So You Think You Are Ready To Retire?’ written in conjunction with international retirement lifestyle expert Barry LaValley. Click here for your free electronic copy of this book or to talk to an Adviser.

Business Will Never Go Out Of Business

By Pip Kean, Cambridge Partners Senior Adviser

Benjamin Roth was a lawyer in Youngstown, Ohio, when the stock market crashed in 1929. Two years later he decided to keep a diary to detail the effects that the financial collapse had on himself, his neighbours, and the nation. He kept his diary for ten years. In the late 1930s, when the depression had mostly passed, he summarised a few points he had learned from the experience.

He wrote: “Business will always come back. It will remain neither depressed nor exalted…. Depression is a time of greatest profit. The investor who has liquid funds and the courage to act can lay the basis for great profits.”

Whether a depression or recession, some businesses will fail. They could be businesses chasing unprofitable objectives, or overloaded with debt, or suffering from poor management.

A mere week after the COVID-19 lockdown, Bauer Media announced it was closing its New Zealand business. Bauer had indicated for some time that they were facing challenges around the viability of their operations. The decision was made at the same time as the pandemic but was not because of it.

Another media institution, NZME’s Radio Sport, abruptly ceased broadcasting on 30 March this year. The fact is that Radio Sport had been balancing on a fiscal knife edge for most of its existence.

 In February, NZME chose not to renew the rights to broadcast live cricket commentary, which revealed the vulnerable position the station was already in.

The fact is some businesses will fail while some businesses will ride out the storm and come through the other side stronger. Entrepreneurs and start-ups will emerge with new ideas and innovations. For instance, following the 2008 crash, startups like Uber, Airbnb and WhatsApp appeared. We also have Kiwi successes – such as Xero, Rocket Lab and PowerbyProxi.

The trading of goods and resources has never gone out of business, and the fact is, it never will. Throughout every crisis in history, business has survived and thrived every time; Covid-19 is no different.

It was true in the 1930’s and it’s just as true today: “Whilst any business can go out of business. Business itself will never go out of business.”

Sources: Consilium, Stuff & NZ Herald, Market Falls and Recoveries

Life is for Living

All the technical talk about investment and superannuation and asset allocation overlooks a few key principles for everyone – life is for living and it’s important to strike a balance in all things, including saving versus spending.  Jim Parker from Dimensional – a highly regarded author and business journalist – has shared these great insights about how to manage the tension between enjoying what you have today and putting money aside for the future.

How Much Do You Need?
Feeling more comfortable about saving for retirement often comes down to setting out in practical terms the kind of lifestyle you want. You also need to consider the costs of aged care and inevitable medical bills. Your Cambridge Advisor will be able to sit down and help you work out how much is enough – and the sooner you can do this, the better.

Finding Your Own Balance
Most people are constantly trying to strike a balance between enjoying life now and ensuring they have the resources to enjoy life later. The good news is there is no ideal balance. It depends on your own goals, needs, resources and expectations. But there are ways of thinking through this challenge.
How do you strike the right balance between saving for the future and enjoying life now? Start by accepting there is no such thing as perfect.

The YOLO Principle
Many people live unnecessarily frugal lives in retirement for fear of running down their principal. But isn’t enjoying the money you’ve saved the entire point? Yes, there is a risk of running out of money. Equally, there is a risk that you never enjoy what you have. Tony Isola recommends the ‘YOLO’ Principle (You Only Live Once).
Which is the bigger worry in retirement – running out of money, or failing to enjoy the money you have saved? Only you can answer that question, but having a clear picture of what you have and how long it will last will definitely help you decide.