We know retirement is a big concern for many Kiwis. Our Financial Resilience Index released in May revealed that over 55% of New Zealanders do not feel financially prepared for retirement.
If retirement is looming in the next decade or so for you, it’s understandable you’re giving a lot of thought to how much you need and how to best prepare. It’s possible you’re also feeling a little worried that you may not have enough.
If retirement is a long way off for you, that doesn’t mean you shouldn’t think about it (in fact, read our blog about why you should start thinking about retirement in your twenties for more on this). Then file this one away for when the day is a little closer!
In this blog we're going to cover how much you actually need, how to prepare, and what to do if you need a helping hand to get there.
This question gets asked a lot, but it’s perhaps better phrased as: how much do you need to live the life you want in retirement?
Here are some numbers to give you a rough idea.
'No frills' or 'choices'?
The 2020 Massey University New Zealand Retirement Expenditure Guidelines provide a general estimate of what you might need in retirement - but note that they are estimates only, and not indicative of your personal situation.
The guidelines break it down according to two lifestyle types:
According to the guidelines, to fund 20 years of retirement:
Of course, if you're living outside the main centres, these amounts are likely to be lower.
Multiply these amounts by 52 to estimate how much you'll need each year you're in retirement.
Individual circumstances are different, so it's important to start thinking about retirement early. The numbers above are just a rough indicator, and how much you'll need actually depends on many factors:
Before you get frightened by the stats, just take a step back and think about your unique situation.
Factor in all the things you’ll be paying for. Include those little things you enjoy, like coffees and outings with friends. Picture the lifestyle you want to lead, and budget for every expense, including any remaining mortgage repayments, insurance premiums, house and car maintenance and so on. Also factor in any assets you own, investments you hold and any part time or casual work you may continue to do once you stop working full time.
Your KiwiSaver, when you're able to access it, gets paid in a lump sum, so the budgeting you do will help ensure you don't blow it all at once when it gets paid out. Making those savings last is key!
This can seem a little scary, but it’s important, because your money needs to last you from the time you stop working until the end of your life. If you’re a woman, you’ll need to plan for several more years of retirement, as your life expectancy is higher than your male counterparts.
Statistics New Zealand's How long will I live? calculator estimates how long you’ll live based on information you enter and low, medium and high death rates in the future. It's a good way of getting a rough idea of how many years of retirement you're likely to need to save for.
Your retirement savings goal is how much you're aiming to have at the point you retire.
Use Sorted's Retirement Planner to factor in NZ Super and any other income (e.g. from investments). This will show you how much you're likely to need compared to what you're currently on track to end up with.
What you end up with might surprise you, and it could mean you need to adjust things a little. Perhaps you'll need to increase your KiwiSaver contributions for the next few years or consider some part time work after retirement to keep a little cash coming in.
It could also mean that you need to adjust your KiwiSaver fund or your investment strategy.
Murray says, "Choose a provider you feel can get you to where you want to be and whose values, track-record and service proposition aligns with your expectations."
Different KiwiSaver funds are suited to different life stages. Young people with decades of market ups and downs ahead of them will naturally have a different appetite for risk than those for whom retirement is looming.
It pays to check how your KiwiSaver funds are invested and determine whether they’re the right assets for where you’re at. If you’re five years away from retirement and in a Growth fund (which typically invests in a higher percentage of riskier assets like shares), you may want to think about whether this is still meeting your goals.
Talk to your KiwiSaver provider or use their online tools that can help you figure out if you need to make any changes.
Your KiwiSaver provider or financial adviser will be able to help you with making adjustments that are right for your situation, so schedule in a conversation sooner rather than later. Investment decisions made now could have a big impact on your retirement savings down the road.
We hope this article has helped you think about how you can start planning for your retirement. Remember, there's plenty of help out there if you need it, and the hardest part is starting!
A little work and some small tweaks now could make the world of difference to your retirement lifestyle, so invest in yourself and make it happen.
As Murray points out, "it’s too late when you reach 65 to wish you’d done more. I’ve never met a retiree yet who’s said they wish they’d saved less."
This information is general information only. It is not intended to constitute financial advice and does not take your individual circumstances and financial situation into account. We encourage you to seek assistance from a trusted financial adviser or other professional advice. The links that are provided or names of third parties are additional resources that you access at your own risk and the FSC takes no responsibility for any third party content. The FSC and its employees make no express or implied representations or give any warranties regarding this information and we accept no responsibility for any loss, damage, cost, or expense (whether direct or indirect) incurred by you as a result of any error, omission, or misrepresentation in this information. 12 July 2021.