How to retire after a garage sale

A small white bowl changed the lives of a New York family after they bought it at a garage sale for $4.40.

It turned out it was from China's Northern Song Dynasty and was 1000 years old. When they put it up for auction at Sotheby's it sparked a bidding war, with the auctioneer's gavel eventually dropping at $3.2 million.

Suddenly retirement looked a lot sweeter for that family.

Unearthing a similar find in a New Zealand garage sale to see you through your later years is as likely as pinning your retirement hopes on winning Lotto.

But treating your finances like a garage sale could get you there instead.

David Boyle, group manager of investor education at the Commission for Financial Capability, says: "We spend our lives filling our homes with stuff and, as we get older, some people start to declutter, getting rid of the things that are no longer important. It not only feels good - but if you hold a garage sale it will give you some income too.

"You can think of your savings and investments in a similar way: when you reach retirement you'll hopefully have accumulated a decent pot of money. Now you need to work out how to decumulate to give you an income when you stop paid work."

It's not a pretty word, but it's a crucial concept: use of your money in a way that provides you with an income for as long as you live.

Ridding your house of clutter feels good, says Boyle, but knowing you can pay your bills and enjoy retirement in comfort brings priceless peace of mind.

"Many people don't appreciate how incredibly important their decisions are about what to do with their money - there is slim chance of re-building that pot all over again if they make poor ones," he says.

An online poll on the issue is part of this year's review of retirement income policies. At the time of writing it shows:

  • 80 per cent are concerned about living longer than their savings.

  • 66 per cent have a financial plan for funding their retirement.

  • 92 per cent think the Government should provide more incentives for saving for retirement.

  • 90 per cent would like to see more investment options that provide a regular retirement income.

No matter how big or small your savings and investments, the key is to make decisions that maintain and protect them across your retirement years - which may be 25 years or more.

Low interest rates are putting pressure on many retirees who rely on interest from savings in the bank. Downsizing the house is one option for homeowners to free up some cash to meet living costs, pay off debt or to enjoying spending.

But in the same way you wouldn't knowingly sell a family heirloom at a garage sale, when you're planning your decumulation there may be assets you don't want to include. Maybe you want to leave your home to your children, so downsizing won't work for you.

Some people shudder at the thought of organising a garage sale but there are other solutions for decluttering.

Just as TradeMe removes the spectre of hordes of people descending on your home at dawn, re-gifting works for some and there are similar choices around decumulation.

Maybe shares or other investments can provide a regular stream of income. You could arrange with your KiwiSaver provider to draw down your funds gradually, leaving the rest still invested until you need it. For some, releasing the equity of their home through a reverse mortgage may be useful.

Just like the early bird who maps out their nearest garage sales and swoops in on the best buys, it's the same principle with your retirement savings: starting early and following a plan is likely to get great results and an income that will last as long as you do.