So if you’re earning $50,000 today, you’d need around $35,000 a year to maintain the same sort of lifestyle into your retirement years. Of course, there are all sorts of variables in that – whether you rent or own a house, whether you plan to work at all or to take overseas holidays and how long your retirement years last.
On average, today’s 65-year-old man can expect to live until he’s 81 and a 65-year-old woman until she’s 84. In the future, we'll probably live even longer – by 2031 the figures are expected to be 84 and 87. Let's assume you plan to retire at 65 – you’ll need enough saved to last you for 20 years.
Will NZ Super still be around when I retire?
Yes. Retirement Commissioner Diana Crossan says you can still bank on some income from New Zealand superannuation.
“Our advice is, firstly, to ignore the scaremongers who say to younger people ‘by the time you retire there'll be nothing from the state’. No New Zealand government can ignore the reasonable needs of older people. The type of pension available could change over time, but it’s very likely there will be some financial support for people in retirement,” she says.
“Secondly, plan on the basis of current levels of New Zealand Superannuation. If you are under 50 and able to save, you may want to be a bit conservative and reduce the level of New Zealand Superannuation you put into your plan. That's not a bad move because it will encourage you to save more, if you can.”
Will NZ Super be enough?
NZ Superannuation provides a basic income. Today’s single pension is $13,302 a year for someone living alone, and $20,465 for a couple who both qualify. And that’s well short of that $35,000 target, if you’re earning $50,000 today.
So if you’d like an income greater than the government will provide in retirement, you’ll have to find it from other sources, such as your own investments or continuing to work after the age of 65.
What are my options for increasing my net worth?
Many people plan to fund their retirement by selling their house and moving into something smaller – and cheaper – when they retire. To do this, your current home has to be your accommodation and an investment. You buy in a popular area, make improvements to enhance the home's value, make a good profit and buy a less expensive home to retire into. The surplus funds then serve as an important part of your retirement fund.
However, how much you get for your home depends on the state of the property market when you decide to retire – and few people actually want a more modest home when the time comes to sell.
A safer retirement strategy is to minimise the risk of financially unpleasant things happening after you stop working – and owning your own home, debt free, reduces those risks.
In the end, the strategy you choose will be a balance of two big factors - how much you like your home and how much income you want in retirement. Consider the options, decide your strategy, then start your retirement planning.
To calculate how much you’ll need for retirement and how quickly you can achieve your goals visit the Retirement Commission’s free and independent website
www.sorted.org.nz. Sorted is packed with information and powerful calculators to help you get ahead.
