17 Apr 2023

Avoid the pre-retiree pitfalls and make the most of your investments

Chelsea Traver at Evergreen Advice  By Chelsea Traver


Whether it’s a 3 am attack of sleeplessness, or a 3 pm attack of workday boredom, many retirees have grappled with one or more of these questions: “When can I comfortably retire? Do I have the right investment plan? Can I afford my current lifestyle in retirement?”

If you’re in your 50s or early 60s, the pre-retiree phase is one of life’s big turning points. While some financial matters are clear - the mortgage might be paid off or the kids may have left home - some seem more uncertain than ever.

As we approach our well-earned retirement we all want to have comfort that we’re making the most of the assets we have, and that we’re avoiding the biggest investing pitfalls.

In our time, Mike and I have seen all the pitfalls! Hopefully, in bringing them to light here, we can help you put them to bed, prepare for one of life’s most exciting milestones and get a decent night’s sleep too.

1. I have too many accounts

We spend a lifetime accumulating assets so it’s understandable that we also accumulate bank accounts, investment accounts and potentially pensions. In fact, many of Evergreen’s pre-retiree clients already have enough to retire but they don’t know because their money is so widely spread - not just across accounts, but countries (and currencies) too. Now is the time to simplify, consolidate, and get a full and clear picture of your investments.


2. I’m only invested in shares

Let me first say that there’s nothing wrong with investing entirely in shares if that matches your goal and risk tolerance. However, if it’s because you simply weren’t sure what else to invest in, it might be time to reduce the risk in your investments. This is especially true if you’re knocking on the door of retirement. Bonds (aka Fixed Income) have a higher return than cash and compliment shares well if you are looking to reduce your exposure to market volatility.


3. I have too much in cash (and not enough elsewhere)

Holding too much in cash can have a significant drag on your returns. There are so many reasons we end up in this position, whether it’s a steady (and subconscious) accumulation of term deposits or other cash options over time, a fear of investing in the wrong option, or analysis paralysis when we’re overwhelmed with financial data or conflicting economic and media opinions.


4. I don’t know how much I can spend

If you want to know whether you can afford to stop or reduce work, the best place to start is asking yourself two fundamental questions:

  • How much do I currently spend?
  • How much will I need to retire?

Through this process you’ll come to understand whether you can maintain your current lifestyle, where you can cut back and when it might be the right time to reduce or stop working.

If those questions seem too big to tackle, the Sorted budget tool is a great place to start. It might also be helpful to start keeping track of your monthly bank balances to see if you could be contributing more to your investments. If you find out that your cash balance is increasing by about $200 a month, why not put that money to work?


5. I have too much invested in one company

We generally don’t recommend any single share accounting for more than 5% of your investments, and in most cases less than this. That being said, if your employer offers a share purchase plan it might be advantageous to take up the offered discount even if this means you are more concentrated in the share for a time. Some factors to consider are:

  • How big is the discount?
  • What are the rules as to when you can sell?


6. I’m not sure which foreign pensions benefit I’m entitled to

Many people who have lived abroad or moved to NZ have foreign pensions. Even though you’re now living in another country, it’s your money and you’re still entitled to it. It can be onerous to get this information (digging up old statements and sending paper requests), but it’s worth investigating. Often these pensions can be more valuable than first thought.


7. I’m approaching retirement and heavily concentrated in investment property

Investment property can be a great way to grow your wealth. It’s especially beneficial for those who have two incomes, because it’s easier to manage the debt payments (particularly with the recent increase in interest rates). If you’re heavily concentrated in this area, you should consider paying down debt on the rental properties, and diversifying into other investment types (such as shares and bonds) which provide more flexibility and liquidity than investment property.


8. I’ve overcommitted to supporting my children

It’s completely understandable that you want to help your children with their university costs or house deposit. If you’ve made the decision to do this, it’s important to remain mindful of the financial implications on your retirement. Your children will have loan options which won’t be available to you if you exhaust your funds. Know how much you need to fund your retirement so you know how much you can comfortably give to your children.


9. I don’t have a strategy in place

Now is the time to take the guesswork out of your finances. Have a think about what you want your money to do for you and the questions you need to answer in order to make it happen. Here are a few to get the juices flowing:

  • How much do I currently spend?
  • How much do I need to retire?
  • Can my investments support me if I reduce my hours?
  • How much do I need to contribute now to retire in 10 years?
  • What are the trade-offs if I switch to a job which earns less?

Considering the path to retirement and how your final working years might look can be a little daunting. While it’s an exciting transition, there are a lot of investment decisions that you want to get right now, before you take the big leap into retirement. By focusing on what you can control, and avoiding the common mistakes, you’ll be able to confidently decide what the path looks like for you and your family.


Want some help with these decisions? At Evergreen Advice, we provide advice and a sounding board to give you confidence about making these key life decisions. Get in touch for a free initial consultation.


Disclaimer: This article is general in nature and does not constitute financial, tax or legal advice in any way. Should you require such advice, please contact Evergreen Advice or a suitably qualified professional.

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