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photo: Royal Bank of New Zealand
Do you have a financial question you would like answered? Send Email susan.edmunds@rnz.co.nz
I’m probably typical of the growing number of women who are unexpectedly single after a long marriage. I’ve been a stay-at-home mom and secondary income earner, which means that now I’m 59, single, on a modest wage, and have a limited number of years until retirement. I have no mortgage and about $160,000 in my KiwiSaver.
Additionally, I have about $250,000 in a CD that is paying 6.25%. My question is, should I invest my money? I know that interest rates will most likely start to drop over the next year, but investing is scary. I feel safe when my money is in the bank. It is a huge sum of money for me and I don’t want to risk seeing it go down in value since it is my retirement nest egg. I did look at an investment firm, but I just felt out of my depth – the numbers they quoted on paper were lower than the CD return, even though they verbally said it could be higher. They also charge an annual fee and brokerage fees on every trade they make, which all makes me nervous.
This is a tough situation to be in. If I were you, I would probably invest some of your money in a fixed deposit.
But obviously I’m not you, and you’d be better off consulting a financial planner. A financial planner might get a comprehensive view of your financial situation, while an investment advisor might be more focused on finding the right investments for you.
A financial planner should be able to help you determine whether you need to take on more risk, and if so, how you’re most comfortable taking it—you don’t want to make investments that you’re uncomfortable with, because when the market moves, you’re more likely to panic and end up losing money.
Dean Anderson, founder of KiwiSaver provider Kernel, says your current situation looks very positive, with no debt and investable assets.
photo: 123 RF
He said the big question was how much income one might need in retirement, and how much of that would be provided by NZ Super.
“Critically, for many of us retirement could last more than 30 years. If interest rates fall and all assets are held in cash, there is a risk of running out of future income.
“This is where a financial planner can help. They can sit down with you, understand your needs, and put together a plan that gives you the confidence and makes it more likely that you will avoid these risks. Diversified funds can be the ideal tool to do this. It doesn’t have to involve a lot of jargon or buying and selling stocks directly.”
He said a common approach is to “bucket invest”. This means dividing your money into several parts. You might put enough money to maintain your income for two to five years in a low-risk investment, such as a term deposit or a cash fund. The money to meet medium-term needs can be put in a balanced fund.
photo: 123 RF
“Finally, the last bucket will contain investments to support your income needs in the last few years of retirement…Yes, there will be fluctuations in the value of this latter bucket, but you can mentally put it aside, knowing you won’t need to touch it just yet, allowing time to smooth out the ups and downs.”
I am 55 and have about $125,000 in a high-risk KiwiSaver account. I save about $5,000 a year and hope to retire at 65. Should I move some of my balance into a low-risk account?
I think the answer to your question is similar to the answer to the first question, although you are currently taking very different approaches.
If you plan to withdraw your money at age 65, you may want to move some of it into lower-risk investments. Standard advice is that if you have three to ten years before you need the money, you may want to buy a mid-range fund.
But are you likely to want to keep some of your money invested after you turn 65? You could keep these funds in higher-risk investments for the long term. Your KiwiSaver provider should allow you to spread your money across different funds.
However, this might be a good time to get some personalized financial advice again.
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