Why Should You Plan for Your Retirement?
As a hardworking Kiwi, you deserve to enjoy a comfortable and fulfilling retirement. However, according to the Financial Markets Authority (FMA), a mere 11% of New Zealanders feel confident about their financial well-being in retirement. This statistic highlights the importance of taking control of your future and planning for your retirement.
Insufficient retirement savings
New Zealanders, on average, are not saving enough for retirement. According to an ASB survey, while 46% of Kiwis recognise the need to save 10% of their income for retirement, only 22% are actually doing so. Additionally, the number of retirees with fully paid-off mortgages is declining, which is concerning. Superannuation was never designed to cover housing costs. If people are having to use substantial amounts of their NZ Super to cover accommodation, making ends meet is a real challenge, which further emphasises the need for personal retirement savings.
The government can’t do it alone
While we may have expectations of government support in retirement, relying solely on the government for a comfortable post-work lifestyle may not be realistic. As the cost of living continues to rise, it’s becoming clear that government assistance alone cannot provide the type of retirement we all dream of. Here are a few reasons why:
Increasing life expectancy
With advancements in healthcare and lifestyles, the average life expectancy in New Zealand has significantly increased over the past few decades. A male born today is expected to live to around 91, while females can expect to live to 93. While longer life spans are a positive thing, they also mean that you’ll need more money to sustain your retirement lifestyle for longer. Additionally, healthcare expenses tend to rise as we age, and not all costs are covered by the government, so it’s crucial to be financially prepared.
You can estimate your own life expectancy using Statistics New Zealand’s cohort life tables. The retirement age in New Zealand isn’t fixed, and many individuals choose to work beyond 65. However, if you plan to retire at 65, aim to save and invest to sustain your desired income for 25–30 years or more.
Limited government superannuation
The current government superannuation amount for singles living alone is $992.74 fortnightly and $763.64 for couples. While it provides some level of support, it’s not a large sum of money, especially if you’ve been accustomed to a higher salary while working. Research by Massey University reveals that even retirees living a “no-frills” lifestyle in provincial New Zealand may fall short by $163 a week. Furthermore, as the population ages, superannuation may become even less generous.
Bridging the retirement gap
Most Kiwis face a retirement gap—the difference between their desired retirement lifestyle and what they are currently on track for. To bridge this gap and secure a comfortable retirement, it’s crucial to take proactive steps and plan.
Depending solely on government assistance can be risky, so it’s a very good idea to develop a retirement plan and invest in a mix of stocks, bonds, and other assets that are appropriate for your age, risk tolerance, and financial situation. You should explore investment options and seek guidance from a financial advisor to then make sure your investment decisions are well-informed. Here’s how to start building a retirement plan:
Step 1: Set a goal
Start by setting clear retirement goals. Retirement needs vary for everyone. Some expenses, such as healthcare, may rise, while others like education or work-related travel may decrease. To determine your savings goal, consider factors such as your anticipated retirement duration, healthcare, lifestyle options available and how they align with your retirement aspirations, and preferred location. Retirement calculators can provide estimates.
Step 2: Income, expenses, and investment
You’ll need reliable income streams to sustain yourself during a potential 30-year retirement. While NZ Super provides a base, exploring additional sources is vital. So, review your income and expenses to identify opportunities for saving. Allocate surplus cash towards building assets through investments. This will help generate income during retirement and reduce your reliance on dwindling assets.
Step 3: Prioritise debt repayment
To enter retirement with peace of mind, prioritise eliminating debt. Start by paying off any high-interest debt, such as credit cards or hire purchase agreements. Clearing these obligations early on will provide a solid foundation for your retirement plan.
Step 4: Maximising Your Retirement Resources
Planning for retirement is not just about saving money; it’s about taking advantage of the resources available to you, such as KiwiSaver. When you turn 65, you can arrange regular withdrawals with your KiwiSaver provider to sustain your retirement income. KiwiSaver funds, managed by providers, grow through investment returns. Beyond your contributions, government annual contributions and employer contributions also help build your KiwiSaver balance. So, start early and contribute regularly.
Taking action today for a secure future
Retirement may seem like a distant milestone, but the earlier you start planning and saving, the better off you’ll be when you finally leave the workforce. While the government pension, NZ Super, provides a foundation, it’s your own savings and investments that will make your retirement comfortable and fulfilling.
By diligently planning, saving, and investing for retirement, you can secure a bright, comfortable and enjoyable future. Begin by assessing your retirement needs, identifying income sources, and prioritising debt repayment. Remember to compare various options, seek professional advice when necessary, and stay informed about changing circumstances. Your retirement should be a time of relaxation, fulfilment, and financial security. So, take the necessary steps now to make that a reality.