How to prepare for retirement

7 min read
12 July, 2021

We know retirement is a big concern for many Kiwis.

Our Financial Resilience Index released in May revealed that over 55% of New Zealanders do not feel financially prepared for retirement.

If retirement is looming in the next decade or so for you, it’s understandable you’re giving a lot of thought to how much you need and how to best prepare. It’s possible you’re also feeling a little worried that you may not have enough.

If retirement is a long way off for you, that doesn’t mean you shouldn’t think about it (in fact, read our blog about why you should start thinking about retirement in your twenties for more on this). Then file this one away for when the day is a little closer! 

In this blog we're going to cover how much you actually need, how to prepare, and what to do if you need a helping hand to get there.  

How much do you really need in retirement?

This question gets asked a lot, but it’s perhaps better phrased as: how much do you need to live the life you want in retirement?

Here are some numbers to give you a rough idea. 

'No frills' or 'choices'?

The 2020 Massey University New Zealand Retirement Expenditure Guidelines provide a general estimate of what you might need in retirement - but note that they are estimates only, and not indicative of your personal situation.

The guidelines break it down according to two lifestyle types:

  1. 'no frills': a basic standard of living that includes few, if any, luxuries
  2. 'choices': a more comfortable standard of living, which includes some luxuries or treats

They also differentiate between single person and two-person households, and location (metro areas like Auckland, Wellington and Christchurch, vs provincial regions). 

According to the guidelines, to fund 20 years of retirement:

  • a single person in a metro area after a basic ‘no frills’ lifestyle would need $721,032 ($693.30 per week);
  • a couple in a metro area after a 'no frills' lifestyle would need $860,808 ($827.70 per week);
  • a single person in a metro area after a 'choices' lifestyle would need $1,022,944 ($983.60 per week); and
  • a couple in a metro area after a 'choices' lifestyle would need $1,464,320 ($1,408 per week). 

Of course, if you're living outside the main centres, these amounts are likely to be lower. 

Multiply these amounts by 52 to estimate how much you'll need each year you're in retirement. 

Individual circumstances are different, so it's important to start thinking about retirement early. The numbers above are just a rough indicator, and how much you'll need actually depends on many factors:

  • whether you'll be living on your own or with a partner;
  • where in New Zealand you'll be living;
  • whether you're paying off a mortgage or are renting;
  • how often you'll be eating out, shopping and spending money on other activities;
  • the amount of overseas travel you'd like to do;
  • the age you retire;
  • your life expectancy;
  • whether you'll continue to earn income in retirement from investments/part time jobs;
  • your eligibility for NZ Super;  
  • and a whole lot more!

Before you get frightened by the stats, just take a step back and think about your unique situation.

Steps to take 

Step One: Budget 

Factor in all the things you’ll be paying for. Include those little things you enjoy, like coffees and outings with friends. Picture the lifestyle you want to lead, and budget for every expense, including any remaining mortgage repayments, insurance premiums, house and car maintenance and so on. Also factor in any assets you own, investments you hold and any part time or casual work you may continue to do once you stop working full time.

Watch Anita Flowers from MAS explain more about the importance of a budget in Episode 1 of Money and You:

Your KiwiSaver, when you're able to access it, gets paid in a lump sum, so the budgeting you do will help ensure you don't blow it all at once when it gets paid out. Making those savings last is key!

Step Two: Look at your life expectancy 

This can seem a little scary, but it’s important, because your money needs to last you from the time you stop working until the end of your life. If you’re a woman, you’ll need to plan for several more years of retirement, as your life expectancy is higher than your male counterparts.

Statistics New Zealand's How long will I live? calculator estimates how long you’ll live based on information you enter and low, medium and high death rates in the future. It's a good way of getting a rough idea of how many years of retirement you're likely to need to save for. 

Step Three: Seek advice 

Doing your own research is worthwhile, but you might also want to seek some help from a professional financial adviser.

FSC research shows that well over half of Kiwis think financial advice can help them achieve their financial goals, give them greater confidence in making financial decisions and greater control over their financial situation. 

The data shows that those who have taken advice reap the rewards of increased returns, along with greater peace of mind, more control, higher confidence levels and freedom from financial worries and stress.

"Advice is very important," acknowledges Murray Harris, Head of KiwiSaver and Distribution at Milford Asset Management.

"For most people in KiwiSaver it’s difficult to determine if you are in the right fund and if you are contributing enough. For most members contributing 3% + their employer’s 3% actually isn’t enough. Advice, whether that’s from an online tool or a human adviser can help you make the right decisions and help get you on track to reach your goal."

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"Advice, whether that’s from an online tool or a human adviser can help you make the right decisions and help get you on track to reach your goal."

Murray Harris

Head of KiwiSaver and Distribution, Milford Asset Management

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A financial advisor can help you put together a road map so that you can see whether you're on track to reach your retirement savings goal ... 

How to reach your retirement savings goal

Your retirement savings goal is how much you're aiming to have at the point you retire.

1. Estimate your KiwiSaver balance at retirement

Calculate how much you’re likely to end up with in your KiwiSaver when you retire using Sorted's KiwiSaver Savings Calculator.

2. Add in NZ Super and other income

Use Sorted's Retirement Planner to factor in NZ Super and any other income (e.g. from investments). This will show you how much you're likely to need compared to what you're currently on track to end up with.

3. Make adjustments 

What you end up with might surprise you, and it could mean you need to adjust things a little. Perhaps you'll need to increase your KiwiSaver contributions for the next few years or consider some part time work after retirement to keep a little cash coming in.

It could also mean that you need to adjust your KiwiSaver fund or your investment strategy.

Murray says, "Choose a provider you feel can get you to where you want to be and whose values, track-record and service proposition aligns with your expectations."

Different KiwiSaver funds are suited to different life stages. Young people with decades of market ups and downs ahead of them will naturally have a different appetite for risk than those for whom retirement is looming.

It pays to check how your KiwiSaver funds are invested and determine whether they’re the right assets for where you’re at. If you’re five years away from retirement and in a Growth fund (which typically invests in a higher percentage of riskier assets like shares), you may want to think about whether this is still meeting your goals.

Talk to your KiwiSaver provider or use their online tools that can help you figure out if you need to make any changes.

4. Seek professional advice

Your KiwiSaver provider or financial adviser will be able to help you with making adjustments that are right for your situation, so schedule in a conversation sooner rather than later. Investment decisions made now could have a big impact on your retirement savings down the road.

Make a start

We hope this article has helped you think about how you can start planning for your retirement. Remember, there's plenty of help out there if you need it, and the hardest part is starting!

A little work and some small tweaks now could make the world of difference to your retirement lifestyle, so invest in yourself and make it happen.

As Murray points out, "it’s too late when you reach 65 to wish you’d done more. I’ve never met a retiree yet who’s said they wish they’d saved less."

This information is general information only. It is not intended to constitute financial advice and does not take your individual circumstances and financial situation into account. We encourage you to seek assistance from a trusted financial adviser or other professional advice.

The links that are provided or names of third parties are additional resources that you access at your own risk and the FSC takes no responsibility for any third party content.

The FSC and its employees make no express or implied representations or give any warranties regarding this information and we accept no responsibility for any loss, damage, cost, or expense (whether direct or indirect) incurred by you as a result of any error, omission, or misrepresentation in this information.

12 July 2021. 

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