Rising costs and economic uncertainty make retirement scary

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But a good Financial Advisor and KiwiSaver can be helpful

Photo 123RF from RNZ

Clive Fernandes
Auckland, July 26, 2022

Retirement is a question on everyone’s mind, whether it is in a few short years or a lifetime in the workforce away.

Kiwis are struggling to save enough to fund their retirement.

Few people have big enough savings or a healthy balance in KiwiSaver to help fund retirement and for those New Zealanders, the future is looking bleak.

Super falls short

The single, living alone rate for NZ Super is $436 a week after-tax, and the rate for couples is $672. This amount is not enough for many New Zealanders to retire, meaning Kiwis are already struggling to cover the cost of retirement, even with NZ Superannuation. Despite the 3.09% increase to NZ Super in April 2021, the payments continue to fall short of covering all the expenses Kiwis have in retirement, and that gap is widening.

There is a risk people will “struggle to live the lifestyle they want once they stop working,” Financial Advice New Zealand Chief Executive Katrina Shanks said.

Figures from New Zealand’s largest KiwiSaver provider, ANZ KiwiSaver, show that balances have risen from an average of $20,000 in 2016 to $48,700 in the year to April 2022. The average Kiwi, over 65 years old, has a KiwiSaver balance under $50,000.

ANZ Managing Director of Funds Management Fiona MacKenzie said that it was encouraging to see balances growing. While this sounds like a lot, it will only increase weekly income by $38 in retirement on top of NZ Superannuation. NZ Super is also not enough to live with due to the increasing cost of living, causing a significant issue for retirees wanting to retire at the age of 65.

Growing expenses

Additionally, the lumpsum expected for a couple to enjoy a satisfying retirement living in a major city has grown by $24,000 in two years to $809,000, while those retiring in the provinces need $511,000, according to research undertaken by Massey University. Even those expecting to live a no-frills lifestyle, not in a major city, would require a lump sum equivalent to $170,000.

“The data cannot tell us the whole story, but it is a good way of sparking a conversation and getting people to think about what sort of lifestyle they’d like to have after 65 and whether they are on track financially,” Ms MacKenzie.

Clive Fernandes











Employers’ choice

ANZ’s recent research has also shown that over a third of KiwiSaver members aged between 66 and 75 and over a tenth of members above 75 years old are still making employee contributions to KiwiSaver, indicating they are still working. However, employers do not have to contribute to KiwiSaver once a worker turns 65, but some continue to do so. Therefore, the number of Kiwis working above 65 years old could be much higher, and there is already a significant number of Kiwis struggling to retire at 65.

The cost of living factor

New Zealanders are not just working beyond New Zealand’s official retirement age but many are also living longer. In addition, there is a lot of pressure to have more money in retirement due to the increased living costs. These circumstances make planning for retirement seem daunting.

But there are some specific things people can do right now which will help set them up for the future. With only NZ super living in retirement becoming harder, having a KiwiSaver balance prepared is necessary to retire at 65.

To assist with retirement expenses, you should ensure you are in a fund that suits your age and risk profile. In addition, people should make regular contributions to their fund. All these factors can increase your KiwiSaver balance and create a comfortable retirement for yourself.

Working out what you will need to have sorted and saved for your retirement can be discouraging and overwhelming, not to mention deciding when the best time to retire will be.

KiwiSaver is a voluntary saving scheme to help set you up for your retirement and can assist you in getting you closer to the daunting lump sum. You can save for retirement as soon as you start working, putting in as little as 3% of your income by creating a KiwiSaver. Over time this will build up to a larger KiwiSaver balance and prevent or reduce the chance of struggling in retirement. With it becoming harder to live in retirement with only NZ super, having a balance prepared is foundational to retiring at 65.

Because each individual’s retirement savings goals will differ according to their financial situation, those unsure how much they will need for retirement should consult a financial adviser.

Clive Fernandes is an Authorised Financial Adviser and the director of National Capital, a financial advisory firm that provides personalised investment advice, with a primary focus on KiwiSaver.
Disclaimer: The above article is not intended to be personalised advice. It is general and may not be relevant to an individual’s circumstances. Before making any investment, insurance or other financial decisions, you should consult a professional financial adviser. A copy of Clive Fernandes’ disclosure statement is available on request and free of charge.


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