Planning to retire in the next 5–10 years? Here’s where to focus

Retirement might still feel like something you can deal with "soon," but if you're between 55 and 60, the choices you make over the next five to ten years could significantly shape your financial freedom and lifestyle in retirement. This is the window where you’ve probably accumulated enough wealth that smart decisions can have a big impact.

Are you on track for retirement? Here's where to focus your attention to make those years count.

One of the most important things to do between 55 and 60 is figuring out how much you need to retire the way you want. Unfortunately, NZ Superannuation likely won’t cover all of your retirement costs so it’s worth getting a plan in place to achieve your ideal lifestyle.

If you’re on track, great - if not, it’s time to review your strategy. Here are a few resources to get you started.

This number is different for everyone but the below article will give you an idea of what other people spend in retirement, and ways to work out what you might spend + the total you may need.

Read our guide to working out how much you need to retire to get started.

When planning ahead for retirement, it can be easy to focus on the future. Make sure you still look after the current you and build up an emergency fund. With one of these in place money stress will significantly reduce, and you won’t need to dip into your retirement investments to cover financial emergencies. This guide covers how much you need, what you might use it for, and where to keep your emergency funds.

Read our guide to setting up an emergency fund

Investment fees can greatly affect your total return, and therefore the quality of your retirement. They are also one of the only constants in investing and, over time, they can eat into your returns even if the markets are up or down, so it’s worth understanding them.

Below is an example of an annual KiwiSaver fee on a $50,000 investment

Check out our fees guide to get started.

Being debt free is great, but whether or not you should pay off debt depends on a couple of things. Namely, the interest rate you’re paying on your debt VS the returns you’re getting from your investments.

For example, if you’re paying 1% on a clean energy loan for your car, but you’re getting returns of 6% from your investments - it may be worth prioritising investment. But if you’re paying a 6% interest rate on your home loan it may be worth focusing on paying down your home loan.

There are lots of ways to pay off debt. One strategy that lots of experts recommend is starting with the highest interest debt and working your way to the lowest - this guide covers ways to prioritise and pay down debt to help you get started.

Now is a key time to review the risk settings of your KiwiSaver investment. As you approach retirement you might find that portions, sometimes referred to as buckets of your KiwiSaver investments need to be moved into lower risk assets - here are a couple things to keep in mind, assuming you’re retiring at age 65:

When you’re 8 to 10 years away from retirement, you’ve got a longer investment horizon until you reach retirement, meaning you may have time to ride out the highs and lows of a more volatile investment and benefit from the potential of higher returns.

You may want to consider higher risk investments, also known as high growth assets, think high growth KiwiSaver funds, or growth oriented index funds and ETFs. They could drop in value next year, but you may have time to ride out that dip, and potentially enjoy higher long-term returns. 

When you’re 5 to 7 years away from retirement, the time when you’ll want this money is nearing, so it’s worth considering what could happen to your investments. Because you have a slightly shorter investment horizon, there’s less time to ride out fluctuations, so you may want to consider more balanced options or shifting more of your portfolio into less volatile investments. Like, you guessed it, a balanced KiwiSaver fund. With more balanced investments you might not earn as big of a return, but you may be less likely to lose money through fluctuations over this shorter timeframe.

While you are nearing the minimum age of retirement in NZ, many Kiwis don’t retire till later on and the average life expectancy is over 80, so these are not hard and fast rules. Just because you turn 65 doesn’t mean you have to have everything in cash or balanced as the average life expectancy is 80+ so people are likely to live beyond that. But you do need to review what is right for you based on what investments you have and what your goals are.

While you’re reviewing the risk settings of your KiwiSaver investments, it’s also worth making sure you’re getting the most out of your KiwiSaver account. Things like fees and contributions alongside choosing the right fund all contribute to your KiwiSaver outcome.

Check out this guide for a full run down on how to get the most out of your KiwiSaver Plan.

The amount you end up with in your KiwiSaver account will be a combination of three things - how much you contributed, your returns after fees, and time (and contributions are the only one of these three you can directly control).

The best way to figure out if you’re contributing enough for your goals is to work backward. First, work out how much you’ll need, then pop your contributions and expected returns into an investment calculator and see what comes out.

If you’re short of your goal - you could consider increasing your contributions, but remember that KiwiSaver is an investment and additional contributions will be locked in and subject to investment risk.

This Kernel guide to KiwiSaver contributions covers all the basics.

There are plenty of other investments to consider outside of your KiwiSaver, and the timeline suggestions above apply equally to all of them. These investments also share the same benefit - unlike KiwiSaver, these can be freely accessed before the age of 65. This makes them ideal for money you may need in the short-term, like helping the kids out with a house deposit or buying that motorhome. Think bonds or cash funds for the shorter-term.

If you’re still 7-10 years away, you have a fair few high-growth asset options like index funds, shares and ETFs, just remember your strategy should be informed by your goals and investment horizon.

Read more about other investment options here.

The secret to planning a great retirement is getting started as soon as possible.

After you’ve started it’s important to review your progress every year or so, then adapt your strategy as you get closer to retirement.

Kernel Wealth Limited is the manager and issuer of the Kernel KiwiSaver Plan and Kernel Funds Scheme. Product Disclosure Statements for the Kernel KiwiSaver Plan and Kernel Funds Scheme are available at Kernel Wealth | Resources & Documents. Investing involves risk including the possible loss of principal and there is no assurance that the investment will provide positive performance over any period of time. The information provided should not be relied upon as investment advice or recommendations and should not be considered specific legal, investment or tax advice.