Imagine being over 65, and spending up to $3,000 a month more than what the government superannuation scheme provides.
Where does that come from in your world?
In a recent discussion with Ben Brinkerhoff, Head of Advice at Consilium in New Zealand, I explored seven critical questions that we need to address to ensure a comfortable and secure future.
Reframing Risk: Beyond Price Volatility
Before jumping into it, we need to reframe the concept of risk, moving away from the traditional focus on price volatility (or degree by which price of an investment changes in the short term). If you don’t have the money when it’s time to spend, that’s risk (aka: loss of capital). To manage this ‘risk’ well, we shift our focus away from short-term market fluctuations to long-term financial certainty. Price volatility (ie ‘market corrections’) is often irrelevant, if we’re not planning to spend the moneyimmediately. For example, market dips in 2001 or 2008 didn’t matter to those not withdrawing funds at the time. Instead, risk should be about ensuring your money grows to meet future needs, leveraging diversified investments over time rather than fearing temporary price drops.
Feel free to geek out on the grandfather of modern portfolio theory here, or just keep reading.
TLDR: Diversification (invest in many things at once) can reduce price uncertainty (what’s often referred to as ‘risk’).
Here are the 7 steps to financial independence, according to Ben Brinkerhoff.
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How Much Do You Have to Invest Now?
Start with an inventory of your assets—cash, term deposits, home equity, KiwiSaver, or other investments. This baseline helps you understand what’s available to deploy toward your goals, whether it’s maintaining a desired lifestyle, supporting family, or achieving financial freedom. It’s like opening the pantry to see what ingredients you have – it’s the first step in making something great. -
When Will You Start Spending the Money?
Define the age at which you’d like to be financially independent—when work becomes optional rather than obligatory. This could be in your 50s, 70s, or beyond, depending on your career enjoyment and autonomy. Knowing this timeline shapes how much you need to save, and when. -
How Much Can You Save?
Assess your current savings and excess income. Are you directing it toward a mortgage, KiwiSaver, or letting lifestyle inflation absorb it? Many people see their spending rise with income, unless they intentionally redirect raises toward savings goals. Having said that, often the hardest time to save occurs when you have small children – life stages play a key role in how much you can save. A budget (or at least intentional cash flow management) is key here. -
How Much Do You Want to Spend?
Yes, at some stage, your money is there to be spend – why not be the one spending it? Estimate your spending needs at different life stages—today and in retirement. Consider current expenses, then adjust for future changes like paying off a mortgage or reduced costs for kids. Most of us will spend more in in the first 1/3 of our retirement, when we’re most active. -
How Long Do You Plan on Spending (ie ‘when are you dead?’)?
How long will you live for?—is tough question to face, but necessary. Life expectancy data offers a starting point, but comfort matters more than precision. Plan beyond the average if longevity feels right, noting that spending often decreases in later years (e.g., fewer holidays, more healthcare). Adjust this as you age and health evolves. -
How Much Investment Risk Will You Take?
Here, “risk” ties back to volatility tolerance. For regular savers (e.g., KiwiSaver contributors in their 30s), high volatility can be a friend—low prices mean buying more at a discount. For retirees, a stable bucket of funds (e.g., bonds or savings) covers short-term needs, while growth assets recover over time. Having around 3-5 years of stable spending (savings) to weather downturns allows you to position for slightly higher returns than term deposits can offer. -
What Do You Want to Leave to Others?
Decide if you’ll spend everything or leave a legacy. If gifting, consider timing—giving now (“with a warm hand”) versus later via a will. If you donate while you’re alive, you’ll get a tax credit this way (which can be donated too). Remember here though – if you want to create a system of intergenerational wealth, this starts first by preparing the vessels (kids).
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Perfection isn’t required to reach financial independence.
Yet that’s what a lot of us get hung up on.
Exact numbers, quibbles over guidelines, and endless spreadsheets still contain assumptions. You’ll never know until you make a start.
If ‘work optional’ is a place you want to be at, we can’t let ‘perfect’, be the enemy of progress.
Advisors play a crucial role in helping others achieve financial security. You can’t see your own blind spots. Doing it alone is entirely possible, but it’s so much better with occasional help and guidance. If you’d like to reach out to discuss a ‘Sounding Board’ or ‘Future Ready Sessions’, book a call here.
