Time to crack open your nest egg?
If you’re recently retired or semi-retired, nest eggs rather than chocolate eggs might be on your mind this Easter.
After a lifetime of saving for retirement, there comes a point when its time to start spending your savings. You will want to protect your nest egg, but you also want to get a good return on your investments and be able to choose the best time to sell them and have cash at hand when you need it.
One approach to managing and protecting a nest egg is to break it down into three 'windows' of spending - the next three years, three to nine years and nine years-plus. You can then choose investments based on these time periods. Here's an example of how it works:
Next three years: invest money for living expenses in cash investments, such as high-interest savings accounts that earn a regular, fixed return, carry little risk and your money is readily available.
Three to nine years: invest in fixed interest investments, such as bonds, debentures and term deposits for medium-term living expenses. Hold these investments until maturity, when the amount invested is due to be paid back. That way you can expect to get the return promised on the investment and your money back at the end.
It needs to be a reasonably safe investment to be sure the money will be there for living expenses in the not-too-distant future. As a rule of thumb, the higher the interest rate offered, the greater the risk.
Nine years and longer: invest for long-term living expenses in longer-term investments, such as property or shares. Look at the higher returns these often provide, including the potential for growth in capital value. Gauge how comfortable you are with the idea that, if markets go down, you may need to wait for the value of these assets to recover.
If you adopt this strategy you need to regularly review your investments to make sure your spending matches your available resources. Your mix of investments will depend on how far through retirement you are, your willingness to take on risk and how much you rely on your money to pay for basic living expenses.
For more information on spending your nest egg, visit the 60plus section of the Retirement Commission’s free and independent website www.sorted.org.nz.
For investment advice specific to your circumstances, talk to a financial adviser. Sorted has a checklist for financial advice to help you find the right person to meet your needs.
