In retirement, that is, when you are no longer receiving an income from employment, the amount of money you have available to fund your lifestyle depends on what you do with your assets. Assets are things of value that you own, such as your house, the contents of your house, your car and your investments. In general, there are three types of assets.

Investment assets

Your investments are assets which generate return through income and capital gain. During our working life, we aim to increase our investment assets and in retirement we use them to provide money to supplement NZ Superannuation. Investment assets can include bank deposits, shares, rental properties, businesses and KiwiSaver.

Lifestyle assets

These are assets such as cars, campervans, boats and household goods which decline in value over time and often need to be replaced. We own lifestyle assets not for financial gain, but to give enjoyment of life.

The home you live in

Strictly speaking, your home is a lifestyle asset as its purpose is to provide enjoyment of life. However, it also increases in value over time. The catch is, the value is only released when the house is sold or mortgaged.

It’s a good idea to value your assets from time to time and to look at which of the three categories they fall into. Assets should be valued at the price they can be sold for, not the amount they were purchased for. The total value of your assets, less any debts, is the amount of wealth you have. In retirement, the way in which your assets are split between the three categories will determine the amount and availability of cash for supplementing your pension.

As a retiree, you need cash to cover your usual weekly expenses, your planned lump sum spending (for example, for a new car or a holiday) and as an emergency fund to cover unplanned spending. With investment returns being so low, the cash you need will come from a combination of investment return and investment capital. This means that over time your wealth will decline.

You have a choice as to how your wealth is divided into the three categories of assets. It’s important to get the balance right so you can have the kind of retirement you want. No doubt you have heard the phrase “asset rich and cash poor”. There is no point having your wealth locked up where you can’t make use of it. 

Many people make the mistake of focussing their attention on having a nice home for their retirement, with no debt and updated furnishings, along with a good car but with very little left over to invest. Ten years or so into retirement, the car needs replacing and the house needs redecoration or repairs and it’s not easy to find the funds for these expenses.

Another mistake is tying up too much money in lifestyle assets such as expensive cars, boats and caravans where it can’t be easily accessed and doesn’t produce an income. However, it’s great to have some of these things to add enjoyment to life.

Everybody has different goals, priorities and values and so there is no one-size-fits-all approach to how your wealth should be split. There are choices to be made, which have different consequences. If you choose to have most of your wealth in your house or lifestyle assets, the money you have available to supplement your pension will be a lot less. However, neither do you want to miss out on enjoyment of life by investing all your spare cash rather than spending some of it on things that give you pleasure.

Sometimes a radical solution is needed to get the right balance between your investments, your lifestyle assets and your house. For example, moving to a cheaper house or choosing to buy a less expensive car will free up money which can be used to provide an income. Alternatively, you may choose to delay your retirement so you can add to your investment portfolio.

As a rule of thumb, aim to have investment assets that are somewhere between one third and half of the value of your house and lifestyle assets to keep the right balance. Make a conscious choice about what the right balance is for you and work towards achieving it by the time you retire. That way, you should have an enjoyable retirement without money worries.

What could your income be?

Find out with our Lifetime Income Calculator!