Retirement is the time to enjoy the fruits of your labour. Less work and more play - you've earned it, after all!
Research suggests that jobs are the main reason for stress in many people, although we doubt that would take you by surprise.
With retirement comes less stress, more fun and time to spend with your friends and family; not to mention that you can finally pursue hobbies that you've always wanted to but just never had the time to get around to because of work commitments.
But here’s the thing..
Is New Zealand Superannuation or other government allowances enough for you to live a comfortable life in this era of high prices?
According to Statistics New Zealand, the life expectancy of Kiwis has increased in the past few decades.
Which means you've got to plan your finances for the next few decades after your retirement. That’s quite a bit of time to think about. With all of these things in mind, it’s crucial that you are aware of investment options that can generate a reasonable amount of income during your golden years.
4 interesting Investment Options for Kiwis:
1. Immediate Annuities
As the name suggests, Immediate Annuities start providing income immediately.
In simple terms, you can invest the lump sum money that you have saved up throughout the years and start taking an income from that money. Think of it as a pension you can buy from an insurance company.
It’s a way of turning your retirement savings into a lifetime source of income for you, which makes it a good long-term investment for retirement.
Pros: An Immediate Annuity protects you against the risk of outliving your savings.
Cons: The earnings from Immediate Annuities might not be enough for a very comfortable lifestyle. In simple terms, the income might just be sufficient to pay the bills, but not much else.
2. Bonds
A bond is a loan given to a company or government by an investor.
The bottom line: Investors invest in bonds to save the money that they have while generating extra income from that money. The amount of your earnings depends on the interest rate.
To get a clearer understanding of how bonds work, consider the following example:
The Auckland City Council wants to build a rugby stadium and it decides to issue bonds to raise money.
The council promises to pay the money back in ten years. To make this loan more attractive to investors, the council agrees to pay an annual interest rate of 5% (which is also known as a coupon rate).
This means for a $1000 investment, the investor earns a gross annual interest of $50 for 10 years and gets the principal amount back at the end of this period.
Pros: Depending on the financial stability of the issuers, bonds are a great option to diversify your investment portfolio. For example, bonds issued by government organisations usually have great stability.
Cons: Corporate bonds could represent a greater risk of default depending on the company.
3. Rental Real Estate
House prices have increased considerably over the past few years, and as a result many people are choosing to rent to get by. However, if you can afford to buy a property and lease it to tenants, there are some things you should keep in mind:
First of all, make sure you have sound knowledge of the Residential Tenancy Act.
Secondly, as a landlord, you’re in charge of maintaining the property. You are responsible for drainage, heating (Insulation), sanitation, overcrowding, smoke alarms, new Health & Safety laws etc.
Did you know you have to appoint a New Zealand-based landlord if you’re leaving the country for 21 days?
If you haven’t been a landlord before, you may not have known this.
So make sure you familiarise yourself with any issues that come with owning a rental real estate property - of which, there are many.
Another tip to ensure that rental real estate turns out to be a good investment option is to buy the right type of property in the right area. For example, a 1-bedroom apartment in the Auckland CBD could be easier to rent than one in an outer suburb. Websites like Airbnb can make finding tenants and visitors much easier, so don't forget to give these a look if you're having trouble sourcing people.
The right investment property could offer good capital gains, over time, but the reverse can also happen and a loss could occur.
Pros: Real estate rental provides a steady income, especially in areas where the majority of people choose renting instead of buying. Also, the financial value of the property will increase over time.
Cons: Tenants might cause damage to the property, or not pay rent on time. Plus there may be legal issues that you need to consider before buying and renting your property.
4. Peer-to-Peer Lending
Peer-to-Peer lending (or P2P lending) might be a good investment option worth considering for a number of reasons.
This is how it works. An online service matches lenders with borrowers who need to borrow money for a variety of reasons.
On one hand, there are borrowers who are unable to borrow money from a bank , and on the other hand, there are lenders (investors) who are willing to invest their money to generate more money.
A peer-to-peer lending platform like Southern Cross Partners facilitates these transactions between lenders and borrowers.
Here at Southern Cross Partners, the opportunity to invest in short-term first mortgage loans is made available to investors like you.
What’s more?
All loan applications are assessed by our credit team first for suitability and we initially use our own funds to provide these loans.
You will not have any contact with the borrower, but you will enjoy a registered first mortgage security over that borrower's property held in trust by our trust company Loan Investment Trustees Ltd.
Sounds like a win-win, doesn’t it?
Pros: Opening an online investment account is quick and easy. Also, you can invest in a portfolio of many loans at once that you can choose from a list of loans immediately available, so no waiting for other investors to fill the loan!
Cons: If the borrower defaults, the lender risks losing their investment. But there are certain platforms that mitigate this risk by doing credit checks - assessing the borrower’s affordability, and securing the loan with a first registered mortgage over property that can be sold - Southern Cross Partners being one of them.
All investments have risks and its important to choose the one that suits you and your own circumstances.
Get Southern Cross Partners guide to retirement to help secure your financial future
