Financial Planning for Different Life Stages: From Young Adult to Retiree
Financial planning is a lifelong journey that evolves as we move through different stages of life. In New Zealand, where the cost of living can be high and the financial landscape is unique, it’s crucial to adapt your financial strategies as you progress from a young adult to retirement. Let’s explore how financial planning changes across different life stages and provide practical advice for Kiwis at each step.
Young Adult (20s to early 30s)
As a young adult in New Zealand, you’re likely focused on establishing your career, managing student loans, and possibly saving for your first home.
Key Financial Priorities:
- Managing Student Loan Repayments: With the median student loan balance at $17,830 according to the Ministry of Education, developing a strategy to manage these repayments is crucial.
- KiwiSaver Optimisation: Ensure you’re contributing enough to your KiwiSaver to receive the full member tax credit ($521.43 annually). Consider your fund choice carefully – at this stage, a growth fund might be appropriate due to your long investment horizon.
- Building an Emergency Fund: Aim to save 3-6 months of living expenses in a readily accessible account.
- Developing Good Financial Habits: Use budgeting tools like those provided by Sorted.org.nz to track expenses and start saving regularly.
- Considering Income Protection: As you start your career, protecting your earning potential becomes important.
Tips for Young Adults:
- Take advantage of the First Home Grant and KiwiSaver first home withdrawal if you’re planning to buy a property.
- Start investing early, even with small amounts. Platforms like Sharesies or Hatch make it easy to begin with minimal funds.
- Educate yourself about financial matters. The Commission for Financial Capability offers free resources tailored for young Kiwis.
Established Adult (30s to 40s)
This stage often involves balancing career growth, family responsibilities, and long-term financial planning.
Key Financial Priorities:
- Homeownership: If you haven’t already, you might be looking to purchase a home. Consider the implications of taking on a mortgage in New Zealand’s property market.
- Family Planning: If you’re starting a family, factor in the costs of raising children in New Zealand, which can be significant.
- Career Advancement: As your income grows, resist lifestyle inflation and instead increase your savings and investments.
- Retirement Planning: Boost your KiwiSaver contributions and consider additional investment vehicles.
- Insurance Review: Reassess your insurance needs, particularly life and health insurance if you have dependents.
Tips for Established Adults:
- Consider setting up a trust if you have significant assets or complex family situations. The New Zealand Law Society provides information on trusts and their benefits.
- Look into school fees and education costs if you have children. The Education Counts website offers insights into education costs in New Zealand.
- Start estate planning, including writing a will and setting up enduring powers of attorney.
Mid-Life (40s to 50s)
This stage is often characterised by peak earning years, but also increased financial responsibilities.
Key Financial Priorities:
- Accelerating Retirement Savings: With retirement on the horizon, it’s time to ramp up your savings efforts.
- Managing Debt: Aim to pay off your mortgage and any other debts before retirement.
- Education Costs: If you have children, you might be facing significant education expenses, including potential tertiary education costs.
- Caring for Ageing Parents: Factor in potential costs associated with supporting elderly parents.
- Career Changes: Consider the financial implications of any mid-life career changes or transitions.
Tips for Mid-Life:
- Conduct a thorough review of your KiwiSaver and other investments. The Financial Markets Authority (FMA) provides guidelines on reviewing your KiwiSaver.
- Consider seeking professional financial advice. The Financial Advice New Zealand website can help you find a qualified adviser.
- Start thinking about your retirement lifestyle and the costs associated with it. The Retirement Commissioner’s Sorted website offers retirement planning tools.
Pre-Retirement (50s to 60s)
As you approach retirement, your focus shifts to ensuring you have enough saved and planning for the transition out of full-time work.
Key Financial Priorities:
- Retirement Income Planning: Calculate your expected expenses in retirement and ensure your savings will cover them. Factor in NZ Superannuation, which as of April 2023, provides $437.83 per week for a single person living alone.
- Investment Strategy Adjustment: Consider shifting to a more conservative investment mix to protect your wealth.
- Healthcare Planning: Look into health insurance options for your retirement years.
- Downsizing Considerations: Evaluate whether downsizing your home could free up equity for retirement.
- Estate Planning: Ensure your will is up to date and consider setting up a family trust if appropriate.
Tips for Pre-Retirement:
- Attend pre-retirement seminars offered by your employer or financial institutions.
- Use the Sorted retirement planner to project your retirement income and expenses.
- Consider gradual retirement options, such as moving to part-time work before fully retiring.
Retirement (65+)
In retirement, the focus shifts to managing your assets to provide a comfortable lifestyle and leaving a legacy if desired.
Key Financial Priorities:
- Income Management: Carefully manage withdrawals from your retirement savings to ensure they last.
- Healthcare Costs: Be prepared for potential increases in healthcare expenses as you age.
- Estate Planning: Regularly review and update your will and other estate planning documents.
- Gifting and Inheritance: Consider how you want to support family members or charitable causes.
- Aged Care Planning: Research and plan for potential aged care needs and costs.
Tips for Retirees:
- Stay informed about changes to NZ Superannuation and other government policies affecting retirees.
- Consider working with a financial adviser who specialises in retirement income planning.
- Explore ways to stay engaged and potentially earn extra income through part-time work or volunteering.
Financial planning is a dynamic process that evolves as you move through different life stages. By understanding the key priorities and challenges at each stage, you can make informed decisions that support your financial well-being throughout your life.
Remember, while this guide provides general advice, everyone’s financial situation is unique. It’s always wise to seek personalised advice from a qualified financial adviser, especially when making significant financial decisions.
New Zealand offers a range of resources to support your financial journey, from government websites like Sorted.org.nz to professional bodies like Financial Advice New Zealand. By staying informed, planning ahead, and adapting your strategies as you progress through life’s stages, you can work towards a secure financial future in Aotearoa.