The crazy thing about retirement is that the best time to think, and plan for it, is when you're young.
Ironically, when you're young, you think you're going to live forever and the very idea of 'retiring' is repugnant because it's another word for getting old. As a consequence, most people fail to plan when they should and therefore lose the opportunity to get on top of it when they are in their 20s and 30s.
If we hope to get a future generation ready for retirement, I think we need another word for retirement that encapsulates a far more attractive idea.
I also think we also need to de-stigmatise ageing by portraying more positive images and stories of people past retirement age because increasingly many choose to work past 65 because they want to, not need to.
This past week on Smart Money we talked retirement readiness and heard plenty of good examples.
One caller worked as a chef his whole life but returned to the kitchen to earn a bit of cash washing dishes. Having worked in a restaurant myself back in high school, I know the pecking order of this business and washing up was the least glamorous position of all. So going from being the chef to chief  bottle washer must come with a fair bit of humility. You could tell this fellow was egoless in that regard.
As well as getting him out of the house, he enjoyed the socialising with younger folks, the residual health benefits of being more active.  The payment was almost a bonus. 
Another was a retired teacher who went back to do some relief teaching. He said it afforded him trips back home annually to the United States but you could also sense the buzz he got from being around younger people and being useful.
Another chap, who drove a truck for a living, came back out of retirement to earn a bit of money after having suffered a stroke. He'd conceived a plan to sell the family home and retire more affordably, in Thailand! How awesome is that?
These kind of stories may come as a relief to those in their 50s or 60s who are panic stricken about their lack of prepardedness. Sure, retirement seems the best thing in the world when you hate your job but if you find something you enjoy doing, and get a lot  back from it, not dropping tools at 65 to stay home may seem less daunting.
On the other hand, if you are determined to stop trading your time for money by age 50, or earlier so you can travel the world, you're going to need a shrewd plan to get there. The FIRE (financial independence retire early movement) was all the rage a decade ago and still has a strong following. It was popularised by the Canadian-born engineer turned blogger Mr Money Moustache, who extolled the benefits of biking, fixing and making your own stuff and eschewed consumerism and wasting money.
His no-nonsense methods put him on the path of early retirement and inspired of personal finance fans to follow suit.
He was/is a talented writer and his methodology a sound one too. Mr Money Moustached proved that you don't have to be born-rich, a tech-entrepreneur-turned billionaire, or an early adopter of Bitcoin to stop paid employment. 
If you're a determined individual, with discipline, a plan and some consistency, you can move mountains in most area of your life.
Where money is concerned, the vast majority of people are simply not awake to what it is they want to achieve, and how their daily habits and choices are shaping their reality. Unfortunately, the wake up call comes some time around 40 or later when you start feeling weary and then turn your mind to the retirement issue. 
At that stage, if you haven't planned, it can be ugly. All the more so with interest rates being so high, and the cost of living too!
A simple plan to avoiding this horror is doing some basic work early on. 


Step one

Decide when you would like to give up paid employment and calculate how much you think you would need to live off.  Run two sets of number; one that includes NZ Super or your government pension if  you are domiciled in another country and one that doesn't. Factor in inflation too. 


Step two
Look at current savings balance in KiwiSaver, or with whatever investments you currently have. If you don't have a workplace retirement savings investment, consider opening one smartly. Most providers have projection tools which show you how much you're on track to have by retirement age. Read the assumptions because they are also important. They include things like; your fund type, your tax rate, your level of contribution and time frame. Most of these tools tell you what you can expect to have per week as a result of your current investment strategy from age of retirement till 90 or so.

Step three
In most instances, the exercise above will elicit gasps of horror when you realise how far you have to go to bridge the gap. DON'T panic.  If you have any wiggle room in your budget, consider increasingly your contribution rate and see what impact that will have on the 'terminal' amount. You can also think about cutting back on other expenses to increase your savings, take on other types of work (side hussles), reinvest in yourself to study or train at something you may enjoy better or earns you more money, both preferably. 
Take comfort from the true stories of some of the folks above who are working in their '70s and getting a lot more out of it than simply money.  

The latest financial blow-up involving Silicon Valley Bank (SVB), and the contagion of Credit Suisse, have likely had one of two responses: “SVB who?”,  Or :”Which one is next and am I invested in it?"

If your reaction was the first, read Matt Levin’s excellent piece here in Bloomberg. If the latter, read on. 

Levels of panic depend on whether you're a depositor or a shareholder in the banks that go bust or are at risk of going bust.

To stem a full-on banking sector melt-down, Governments are leaning in with guarantees that retail deposits are safe, well to a certain amount anyway.  They do this to comfort retail investors who have comfortable size term deposits and the like to prevent a mass exodus. The greater fear lies with shareholders who aren't likely to benefit from any Government bail-out.

​Before you heave a sigh of relief about not being a shareholder in any  American banks, or Credit Suisse, take a beat. 

If you’re a New Zealander, chances are you have a KiwiSaver account. More than 3 million people do.  The majority are invested in Growth funds, which tend to have a broader exposure to sharemarkets around the world, including Switzerland and of course America.

​So despite being at the bottom of the world, when it comes to diversified share portfolios, it is a small world indeed. There is a good chance you do have exposure to both SVB and Credit Suisse.

The good news is, it's not likely much.

The average balance in KiwiSaver is around $30k. And when you breakdown all the investments you hold around the world, your exposure to any single stock (unless it is in the Top 10 holdings) is likely to be miniscule.

On a balance of $30k if you're invested in the S&P500, its around $11.

​On a balance of $100k for example, it's around $36.  In other words, it is not going to throw off your retirement.  This is the benefit of being invested in a wide range of companies, across a wide range of countries. 

The lesson here for investors is to start caring, more, about what they're invested in.

​I will hazard a guess that 98% wouldn't have a clue. 

It’s a bit harsh but consider the fact that close to 40% of savers don't make regular contributions into their accounts. KiwiSaver is an  investment vehicle engineered specifically for your retirement. You need to make regular contributions to optimise what you'll have for retirement.

Step by Step 

Before we go forward, let's take a step back.

If you want to understand better what you’re invested in, firstly you need to know your fund type.

If you don’t already know, log into your KiwiSaver account. If you're invested in other funds outside of KiwiSaver, I expect your understanding (overall) will be better.  If you don’t who your provider is,  phone Inland Revenue or  try logging into your MyIR account online. You'll find it under the KiwiSaver tab.

Once you know with whom and what fund you’re invested in, you can look at the composition of that fund on your provider’s website. Regardless of who you’re invested with, all of them will have a Fund Update page, usually it is alongside the Fund type you’re in.

This is an example below with reference to Simplicity KiwiSaver.

Risk 

Navigate to the page that outlines the different fund types and find your fund. There will find a risk indicator rating.

This indicates the level of risk you face given your fund type with 7 being the highest and 1 being the lowest.

Generally speaking, the more shares you have in your fund, the higher the risk.

The risk is higher because the share market has a lot of volatility.

Regardless of your level of expertise, you’ll have some appreciation for this after all the covid aftershocks and the rise and fall of your balance.

Underneath the fund’s description, you’ll see the first year return. Don’t panic if you see a negative numbers. It has been a horrible year in the markets and most providers will be posting a negative one year return at this stage. To cheer yourself up, look at the return p.a. since inception. There you will see a happier story, unless you only joined KiwiSaver recently.

Underneath the return, you’ll see a pie chart. This breaks down the types of assets you’re invested in. 
In this case it breakdown as follows:

• International shares
• NZ Shares
• International fixed interest
• NZ Fixed interest
• Australian Shares
• Cash

The key difference between a Conservative Fund and a Growth Fund is the ratio of income assets (cash and fixed interest) to growth assets (shares and increasingly other assets like Private Equity holdings - more on that in a later blog).)

Fund Updates

These are great documents to read. It’ll explain all of the above in greater detail.

It’ll also show you how your fund fared, compared to the benchmark that it uses to compare performance.

“The market index annual return is a composite index, calculated using the return of each asset class index the fund invests in, weighted by the fund’s benchmark asset allocation."

Okay so these are broad brush strokes.

For the real juicy details, i.e. are you invested in Credit Suisse or SVB, you’ll need to look at the holdings of your fund. The fund update will show you a provide of the top 10, but you’ll want to go deeper than that for the rest.  With Simplicity's diversified funds, you're invested in 3,000 shares spread across 23 countries so SVB won't be in the Top 10. If it was, you'd be worried.

You can find the entire holdings on the Companies Offices disclose register.  Search your provider and fund type.

Your fund manager, if asked, should provide you with the complete holdings. It may also be on their website if you did a big of digging.

With Simplicity, you have total transparency via a cool tool called Where in the World is My Money. If you enter your balanced and the fund type you’re in, you can find out to the dollar what shares, bonds and other assets you own.

Users will be reassure how well diversified they are.

It is an age old adage, but diversification really is one of the best ways to mitigate risk when it comes to investment. Imagine you were only invested in US bank stocks for instance and there was a huge run on banks there. As an investor, you'd be in shocked.

Property is another good example where diversification should be considered. Let's take Christchurch as an example. Say you were only invested in property located in Christchurch in 2010. I'm willing to bet many investors learned the hard way, not to put all their eggs in the property basket after that year.

Risk is all around us. Understanding what the risks are with your investments means you can either sleep better at night or potentially enjoy a higher standard of living in retirement. Of course there are no guarantees, but it pays to know either way. 


The information contained above is purely informational and should not be construed as personalised financial advice. For personalised advice, I recommend you seek a fee charging financial advisor. 
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