The Business Advisory Blog

The Business Advisory Blog

Insight, news and updates from Alliott NZ Chartered Accountants, Auckland New Zealand. The views expressed here are the views of the author and should be discussed in further detail should an article be relevant to your individual circumstances.

While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents. Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.

Michael Beech
Published on

If you have a desire to maintain wealth and pass it on to future generations it needs to be considered sooner rather than later.

parent hand-78Ideally it needs to be considered as part of a pre-retirement planning process. For most people once they stop work there isn’t a lot of room to increase their wealth so succession desires need to be factored in early.

However, it can often be difficult to establish an appropriate succession plan at this pre-retirement stage because in a lot of cases your children are not yet old enough for you to have a good understanding of their potential need for financial support. If you’re planning to retire sometime in your 60’s then at the point where you are doing your retirement planning (a few years earlier) your children are probably in their 20’s or early 30’s and might not be married or have children or be settled into a permanent career, so understanding their future needs can be difficult.

House price inflation

Regardless of your children’s situation one thing is for sure, affording a home is difficult, especially if they live in Auckland. If you want your children and grandchildren to live in a reasonable home, in a safe neighbourhood with decent schools then you are probably going to need to assist them with this purchase. 

Succession isn’t just about estate distribution. In many cases it starts happening long before then.

How much can you afford to give away?

With this in mind the obvious question is “how much can you afford to pass on and still ensure you have enough capital to fund your own retirement”.

How many children you have is obviously one factor when planning succession. There is no rule that says you need to distribute evenly to all your children, but in reality it is often quite difficult (and sometimes quarrelsome) if you move away from a formula of equitable distribution (as an aside to this topic, we are finding that as Trust law is coming under more scrutiny, due to beneficiary challenges in the courts and as a result of the upcoming rewrite of Trust legislation, professional trustees are increasingly reluctant to support distributions from family trusts which aren’t fair and equitable to all beneficiaries of a similar class i.e. adult children).

If you distribute a few hundred thousand dollars to each child to help with housing the total number can get big very quickly. Will there be sufficient capital left to pay for your own retirement needs?

When considering whether you have enough capital for retirement it’s important that you consider all of the variables that will impact on your capital during retirement and build your succession strategy into the formula.

Income and inflation

Arguably the most important variable is determining how much cash flow you require during retirement to pay the bills and provide you with the lifestyle you desire.

You then need to consider the impact of inflation on your costs over the coming years. At the moment inflation is relatively low, but over the course of your retirement it will likely average out at a higher level than it’s at now. You also need to consider the actual inflation on the goods you want to consume. One of the comments we often get from retired clients is that the CPI inflation basket doesn't reflect the increasing costs of the goods they consume, in particular the increasing cost of medical care and medical insurance.

Return on capital and decumulation

Once you’ve worked out how much cash flow you require you then need to determine how you are going to pay for it. NZ Super and KiwiSaver will pay for a bit of the cost, but for most people there will still be a significant short fall to make up.

It’s therefore important that you have a good asset strategy to ensure your capital will provide an adequate return to help fund the cash flow short fall. It’s unlikely that the low return available from bank deposits will be a good enough return to cover the difference. As such you need to have some of your capital spread across other sorts of assets, such as property, shares and bonds, so that you can increase your long run return on investment.

However, even after this it may still be necessary to somewhat erode capital over the course of retirement (at least in an inflation adjusted sense). This is common in retirement and there is nothing wrong with eroding capital, it’s just a matter of ensuring you understand how much impact this might have on your capital (and ultimately on your estate).  


In amongst all of these variables how much and when you want to pass on to your children is just one of the factors you need to consider.

In order to develop a good succession plan it needs to be considered as one component of a broader retirement plan. You need to input all of the variables into a long-term forecast before you can make an informed decision about when and how much you will be able to pass on to your children.

It is also important that you get all of your relevant advisers - accountant, lawyer and investment adviser - to communicate with each other when developing your retirement and succession plan so that everybody is working in the same direction and understands the various issues to be considered.

Michael Beech CFA is an experienced investment specialist and is responsible for providing investment advice as well as managing the investment portfolios for many of Alliott NZ's clients. Click here to read more or call Alliotts in Auckland today on 09 520 9200.

Topics: housing Inflation kiwisaver retirement succession wealth