How much money will I need to retire?
The best place to start is by working out how much regular income you will need on top of NZ super. You also need to consider inflation. Over time inflation eats away at your buying power (think back to what it used to cost to fill up a trolley of groceries five years ago to what you pay now).
A conservative rule of thumb is, for every $100 dollars a week you want on top of NZ super, you will need to have saved around $83,000 (after inflation) at retirement to last you around 20 years*
*this retirement income calculation is based on saving a lump sum of $83,000 by age 65, delivering after tax performance of 4.5% pa, resulting in $100 per week income for 20 years. The income is inflation adjusted at an annual rate of 2.5% thus maintaining purchasing power of the $100 throughout the 20 year period.
For a number of New Zealanders, the minimum contribution rate of 3% plus your employer contribution is not likely to be enough to reach this goal. When we look at Australia, they’ve had compulsory retirement savings for more than 22 years. At the moment they have a minimum 9.25% contribution rate, moving to 12% over the next few years.
The good news is, with a little planning, investing some of your time, and getting good advice from your financial adviser, you can really improve your chances of having a better retirement.
How to plan for your retirement.
To get started, work out where you are spending your money today. I recently updated our budget and worked out that I brought on average eight coffees a week. That doesn’t necessarily sound a lot, but over a year it adds up to nearly $1,900 a year. If I cut down to four coffees a week, I could be saving an additional $950 dollars, and over the next 20 years that would add up to $19,000. That doesn’t take into account any potential investment performance.
The next thing to think about is working out a strategy. Just like you would when you go on holiday, you need to do your research to make sure you get to where you want to go and do everything you want when you get there.
A financial strategy will help you get to where you want to go, and give you the means to get there. There are many great places that provide useful ideas and information. Getting some financial advice could be a great option. An authorised finanical adviser can sit down with you, go over your personal circumstances and consider what might be the most appropriate strategy for you. They then keep you on track as your circumstances change and your goals and objectives are reviewed.
Consider other investments.
KiwiSaver is a great foundation to build your retirement on, but there are other similar investments, like our NZ Funds LifeCycle Savers program, that give you the same access to investments that are not ‘locked in’ like KiwiSaver. This provides the chance to add to your long term savings with the advantage of accessing your money if needed to help you though life’s ups and downs.
So, to answer the question – Is KiwiSaver our saving saviour? By itself, and just setting and forgetting, then probably not. It will be better than doing nothing, but it’s likely it won’t provide you with the best possible retirement outcome.
However, if you look to maximise the benefits it offers, such as by increasing your contribution rate, investing some time into developing a financial plan and looking to invest in other unlocked funds, you will be in a great position to really look forward to those golden years.