Are you on track for the retirement lifestyle you’re envisioning? Retirement may seem a lifetime away, but the earlier you start planning for it, the more likely you are to create a good-sized nest egg for your ‘golden years’.
A good way to start is to understand how much you need to put aside, and as it turns out, it may be more than you think. Here are some interesting insights from the latest New Zealand Retirement Expenditure Guidelines.
Are you relying on NZ Super alone?
Published in 2019, The New Zealand Retirement Expenditure Guidelines confirmed that NZ Super alone isn’t enough to support a comfortable retirement lifestyle, and in the cities, it may not even cover the cost of a no-frills lifestyle.
The report found that the weekly cost of a ‘no frills’ lifestyle, for a two-person household in the city, was $898.73 – which is approximately $266 more than what NZ Super pays a couple (if both partners qualify). The only situation where the expenditure came close to NZ Super payments was that of a no-frills lifestyle of a two-person provincial household.
Of course, this data is based on the current cost of living, which may change (and will likely increase) in the coming years and decades. That’s why it’s important to have a plan in place, to ensure that your retirement savings last as long as you need them to. Which brings us to the next point…
The importance of planning for the future
As we said, the figures above reflect a ‘no frills’ lifestyle, or the basic standard of living with little to no luxuries. If you aspire to a more comfortable lifestyle, planning for retirement is key, and the earlier you start, the more likely you are to get there. What’s more, you may need to save smaller amounts on a regular basis.
For example, to meet a difference of $266.19 between the actual cost of living and NZ Superannuation, a two-person city household would need to save $320 weekly from age 50. But if they began saving for retirement from age 25, they would need to save jointly $104 per week.
There are a number of ways to help your savings, including (but not limited to) KiwiSaver, investments and other income sources.
One of the benefits of regularly investing in KiwiSaver or other investment types is that the longer you leave your money invested, the more chances it has to grow. Plus, the longer you leave your money invested, the more powerful the compounding interest effect.
Here’s an example to clarify this concept. If you save $1,000 and your investment earns 5 per cent in your first year (or $50), your balance will be $1,050. In the second year, if you save another $1,000 on top of your existing $1,050, and your investment earns 5 per cent again, your balance will be $2,152 ($2,050 + 5%). So by investing $2,000, you’ll have an extra $152 earned in your funds in two years.
Like to plan early for retirement?
Get in touch – as financial advisers, we’re here to help you make the most appropriate financial plans for your present and future, based on your circumstances. We can help you find the most suitable savings options, so you can look forward to the retirement lifestyle of your dreams.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.