Are you saving too little for retirement? Or maybe you’re saving too much.

We all know splurgers who fail to put money aside for retirement. At 65, they’ll pull out all their paltry KiwiSaver cash and splash it around on holidays, cars, and renovations. They’ll spend the lot and have to work until they drop, or live on NZ Superannuation alone.

But there’s another groups of retirees which is equally vulnerable. They worry themselves sick about funding their old age, but will probably die rich. They’re the over-savers.

To have a comfortable retirement, you probably won’t want to be either of these extremes. Here’s what to avoid.

Shop ’til you drop

Splurging is one of the biggest threats to Kiwis’ retirement plans.

Too many of us spend all we earn – and more. These people tell themselves they’re going to start saving ‘one day’.

‘One day’ never comes. Buying that next iPhone, trip to Fiji, or to-die-for shoes always trumps putting money away for retirement. Living for the now seems to be fixed in splurgers’ DNA.

The reality of reaching retirement with little in the way of savings isn’t good. Who wants to be stuck at home simply surviving on NZ Super?

Saving too much is a ‘thing’

Then there are the over-savers.

Over-savers suffer from a number of financial afflictions and can be just as delusional about their retirement as those who live for the now. They scrimp and save all their working lives, but still believe their money will run out long before they do.

Simon Hepple, a wealth adviser at Pie Funds, asks: “What’s the point of accumulating wealth if you’re not going to enjoy it?”

But he says flicking the switch from saving to spending when we finally reach retirement is psychologically hard, if not impossible.

You have to think of it this way: If you don’t fly first class with all that dough, your children might instead.

Learning how to spend

It can be hard to stop putting money aside for a rainy day.

“Clients who have been in business or farming have often had to go without for a number of years,” says Hepple. “Spending more in retirement can be abhorrent to them.”

Over-savers have to teach themselves to spend.

The other main affliction suffered by over-savers is refusing to dip into their investments. Many want to live off the fat on the cream: the interest and dividends from their nest egg.

Because interest rates fell over the past decade, trying to live off 3 per cent of your savings means denying yourself pleasures that you can well afford, says Hepple. You could be facing a miserable retirement.

Spending some of your capital as well as the ‘fat’ is exactly what retirees should consider doing during the ‘decumulation’ phase after they stop working. Plan to spend a percentage of the capital each year, as well as the earnings. Speak to a financial adviser to find out what’s best for you.

A plan for the future

Whether you’re Jekyll or Hyde, it’s good to plan for retirement. With a budget, your money can stretch further if you need it to, and last as long as you do if you want it to.

If you have a KiwiSaver account, other savings or even lump sums from reverse mortgages, then consider using financial adviser and author Liz Koh’s three-bucket approach.

Start by adding up your capital, and then work out how much of it you want left when you die. Divide the remaining sum into three ‘buckets’. If you’re 65 and hope to live to 95, that’s three decades. Assign one bucket for each decade.

Bucket 1: Plan to invest the first bucket (for the first five to 10 years) in something like term deposits or bonds, and to use up both the income and capital over that period.

Bucket 2: The second bucket could be invested in a combination of income and growth assets, which could be converted to income assets-only when the first bucket is used up.

Bucket 3: The third bucket, including final capital, will remain untouched for around 15 years and could be invested in growth assets.

One of Koh’s best tips is that you don’t need to split the money equally between the buckets. You may plan to travel or spend more in your first third than later thirds. We often spend less as we age.

On the other hand, if you don’t have family around to help in your later years, you might want to drop more into that third bucket to pay for late-life care.

Diversify or die

Investing too conservatively is another big trap to avoid if you want your retirement savings to last the distance.

Many Kiwis think the done thing is to cash in your KiwiSaver come 65 and invest the money in term deposits at the bank. The problem with term deposits is that they can shrink with inflation.

You’re retired for a long time these days, because we are living longer. That’s a long time to have your nest-egg languishing in a potentially low-interest account.

Seek financial advice or talk to your KiwiSaver provider about what fund suits you best when you retire.

Finally, don’t forget to diversify.

To help weather the inevitable financial downturns over your retirement, try to invest your capital across a diverse range of investments, just like when you were building up your nest egg.

So, save – but be prepared to spend when you retire. You want to create a retirement you can enjoy.

Published 21 February 2019

Story by Diana Clement

This article does not contain any financial advice and has not taken into account any particular person’s circumstances. Before relying on it, we recommend you speak with a financial adviser. This story reflects the views of the contributor only. Content comes from sources that we consider are accurate, but we do not guarantee that the content is accurate. Simon Hepple is an authorised financial adviser at Pie Funds. You can access his disclosure statement free of charge at www.piefunds.co.nz.