Sound investment accrues healthy post-retirement benefits

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Clive Fernandes

Clive Fernandes

Auckland, February 26, 2022

KiwiSaver could be a good option


                                                                   The Retirement Expenditure Guidelines measure the real cost of retirement (Image Courtesy: Massey University)

 For some of us, retirement may be close and for others, it might still be ten or more years away. But the question we all need to answer is, ‘how much do I need to invest and save for my retirement?’

Nowadays, it is difficult to cover the cost of retirement, even with government Superannuation payments. This is because the cost of retirement has increased. Although the New Zealand Super has also gone up by 3%, these payments alone will not cover all retirement expenses.

Married couples who both qualify for New Zealand Super can get $672 per week, which is only approximately $35,000 per year after-tax (M tax-rate) (Source: Work and Income) and for singles living alone, it is approximately $437 after-tax, $23, 000 per year.

Superannuation inadequate

For many Kiwis, this retirement pay is not enough. Nearly 50% of people agree that the New Zealand  Superannuation alone is not enough to retire on based on survey results.

A large number of people have told the Commission For Financial Capability (CFFC) researchers that the New Zealand Super will not be sufficient for their livelihood after retirement. In the past two years, the approximate lumpsum required for an urban couple to enjoy a comfortable retirement lifestyle has moved up from $785,000 to $809,000 an increase of  $24,000. Those in rural areas need slightly less at only $511,000 according to research undertaken by Massey University.

Additionally, the costs of a minimalistic retirement lifestyle for urban singles increased by $22.59 per week in 2021, and comfortable lifestyles by $35.55. Increases in the costs of transport, housing and utilities are factors that affect retirees most.

Modern Kiwis are facing the risk of not having enough to live the lifestyle they want in retirement. To help them enjoy a comfortable retirement free from financial stress or anxiety about money, I recommend a financial plan and investing in KiwiSaver and other sources that can provide them with the additional income needed for a comfortable retirement lifestyle.

Retirement goals

What you need for retirement will depend on your preferred retirement lifestyle and goals. Research by National Capital shows that three out of four Kiwis are unsure of how much money they need to retire. A good estimate is $600 to $1400 per week, as shown by the annual Massey University survey.

When planning for retirement, adjust for more years in retirement as life expectancy in New Zealand has increased. If unprepared, you may run out of money. According to the Retirement Expenditure Guidelines (Massey Fin-Ed Centre), most Kiwis have to make arrangements for additional retirement income. As there is no official retirement age in New Zealand, many Kiwis work even after reaching 65 years of age, either because of the above or because they just love what they do.

Currently, the life expectancy in New Zealand is 86 years for men and 88 years for women. This means that Kiwis can expect to live between 21-23 years after the retirement age. During retirement, needs and wants often change and this means spending does too.

What do you want to spend your retirement savings on? Below is a graph that shows what people told ASB they would be using their KiwiSaver funds.

Planning for the future

You cannot control what happens in the future, but you can certainly plan for it. So, what can you do to prepare for retirement? Start saving!

It is never too late or too early to start saving for your retirement. The sooner you start the better. Whether you are 30,40 or 55 years of age, saving or investing your money can help you maximise your retirement savings and invest in your future.

Retirement planning is more than just organising money.

By organising your finances early, you can make a huge difference to what your retirement lifestyle will look like. To start, work out how much money you will need in retirement and then set up a financial plan that optimises your finances and KiwiSaver account to achieve your goals. Investing over time will allow you to build up a lump sum and prevent or reduce the chance of struggling in retirement.

If you are unsure how much you need for retirement you can consult a financial adviser.

Investing your money into a suitable KiwiSaver fund is one way you can make your money work for you and increase your retirement amount immensely.

The KiwiSaver Option

KiwiSaver is a great option not only because of the government and employer contributions, but because of compounding interest. Compounding is when your returns from KiwiSaver are reinvested so that you earn returns on your returns. So, not only do you get $0.50 from the government for every $1 you invest (up to a maximum of $521.43 per year), and a 3% contribution match from your employer if you contribute 3% of your salary, but you also make money on your money. Even if you are self-employed, you can still sign up for KiwiSaver and receive the government contribution if you invest in it yourself.

Regularly investing small sums like this towards your KiwiSaver savings and retirement will make a significant difference to your retirement life.

“Retirement is only scary if you go into it in an unplanned, unprepared way. Then it comes as a shock to your system. That is the key message,” Pushpa Wood, Director, Fin-Ed Centre of Massey University said.

Key questions to ask yourself are (a) Do you know how much you need for retirement to live out your personal retirement goals? (b) Do you know how much you are currently contributing to your KiwiSaver account? (c) Will it perform well enough to give you the amount you need for retirement, and in time? (d) Sorting out your KiwiSaver is the first step to a better retirement outcome.

Don’t delay, do it now.

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 in nature 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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