Assumptions and suggestions

In creating the calculators at Sorted 60plus, we have made some assumptions and suggestions. Invest 5 minutes now to read them. It is important information so you fully understand your results and the thinking behind the calculations.

Estimating longevity and rate of return

The calculators at Sorted 60plus estimate things like when you are expected to die and the possible return on your investments. The estimates are based on past experience (statistics) and future expectations. In real life, these timeframes and amounts could be quite different. You will have the opportunity to change these should you wish to.

Life expectancy

Your life expectancy is the age that you are expected to live to, based on your age now. As you get older, your chances of living to an older age improve.

The following figures show the average life expectancy at different ages. Half the population will live longer than this and half the population won't live this long.

Expected lifetime:

Note: The expected lifetimes shown above have been rounded up to the next whole age.

Source: Statistic New Zealand

Trading down your house

If you choose to sell your current home and buy a cheaper one to free-up more money to spend during your semi-retired / retired years, we have assumed that it will cost you 5% of the value of your current house to move. That will pay for the sale commission, the moving costs and possibly some costs of fixing up what might be your final home. We have allowed for this cost in our calculations.

When the house is all you have

If you don't have any savings or investments but do have a house and need more money to live on, there are a couple of options you could consider.

You could trade-down to a cheaper house, releasing capital. Or, you could consider a reverse equity mortgage or selling-back to family. Check out Regular Income for more information on these.

If trading-down isn't an option and you are considering selling and renting, you need financial advice. The cost of selling your house and then paying rent for the rest of your expected life is unlikely to outweigh the benefit of staying in your own home and managing on New Zealand Super and any other income that you can depend on.

If you have a partner and one of you has to go into a rest home, the value of your house is exempt from asset testing. However, if you have sold your house, the money you have won't be exempt from asset testing.

Check out www.workandincome.govt.nz and see what help they can provide.

Future spending

The 60plus calculators take into account inflation and the way this will push up your expenses over time. Experience suggests, however, that your day-to-day spending will actually go down in real terms as you get older. By ignoring this likely reduction and assuming your expenses are constant in real terms, we have allowed for some unexpected expenses during your semi-retired / retired years.

Future income

The 60plus budget calculator assumes that income from New Zealand Super, part-time work, employment pensions and other sources will increase in line with inflation.

Real rate of return

The real rate of return is the amount you will earn from your investments after investment fees, tax and inflation have been taken into account.

Throughout the 60plus calculators we have used a default real rate of return of 2% per annum, which is equivalent to a long-term gross return of around 6.5% per annum on a conservative portfolio.

Source: Melville Jessup Weaver - Consulting Actuaries

Choosing your rate of return

In practice, what your money earns will depend on what's happening with interest rates and investment markets.

If you have substantial savings and don't need the money for a long time, say, nine years or more, and you are concerned about the impact of inflation, you might want to put more of your money into investments like shares that are more volatile, but offer higher returns in the long-term.

Alternatively, your approach to investing might be more conservative than ours.

Either way, we've given you the opportunity to change the rate of return to one that suits you better.

Savings and investments

For the purposes of providing you with a financial picture, all savings and investments entered into the 60plus calculators are assumed to be liquid, that is, readily available or easily converted into cash. And that any assets you need to sell to provide income for the next year are being sold now.

It is, of course, up to you to decide on the best time to convert your assets into cash, that is, sell your shares, investment property, etc.

Spending money

Your semi retirement / retirement spending money will come from three main sources:

• regular income you can depend on, such as, New Zealand Super, part-time work, employer pension schemes, etc
• your nest egg and any earnings on this money, for example, interest, dividends, rent, capital gains, etc
• any money released from trading-down your home or selling other assets like a bach or second car that is no longer needed.

Calculating the amount you can expect to have available to spend each year from now

The amount you can expect to have available to spend each year from now will depend on whether you choose to spend all or some of your nest egg.

The amount is calculated each year by adding a 2% real rate of return to the part of your nest egg remaining after your spending money for that year has been deducted.

Reduction in couple's expenditure on death of the first partner

If you have a partner, when one of you dies, there should be a reduction in the surviving partner's expenses.

A rough approximation for this reduction is 40% and this is what we have assumed where necessary.

Given this, if a couple needs $1,000 a week to cover expenses, the surviving partner will need $600.

This is in line with how New Zealand Super is set.

Now, check out the calculators. The 60plus budget calculator or the Managing your nest egg calculator. Or select another topic by using the main navigation menu above.