Will you be able to af­ford re­tire­ment?

Matamata Chronicle - - Retirement -

EVEN if your re­tire­ment is a long way off, the fi­nan­cial de­ci­sions you make to­day can have a ma­jor ef­fect on your life­style in the fu­ture. So start plan­ning now!

Make a plan and re­view it reg­u­larly – Re­view your plan at least ev­ery two years of when­ever your fi­nan­cial cir­cum­stances change.

In­volve fam­ily – They’ll be af­fected by your de­ci­sions and will be able to of­fer knowl­edge and sup­port.

Do a bud­get – You need to know how much your re­tire­ment is go­ing to cost.

Most re­tired New Zealan­ders get their in­come from two main sources – a pen­sion from the gov­ern­ment, called New Zealand Su­per­an­nu­a­tion and their own pri­vate sav­ings.

Your chal­lenge is to work out how much you’ll need to live on in re­tire­ment over and above New Zealand Su­per­an­nu­a­tion and how much you need to save to have that ex­tra in­come.

To be el­i­gi­ble for NZ Su­per you need to be aged 65 or over and a legal res­i­dent of New Zealand, hav­ing lived here for 10 years since age 20. Five of those years have to be since you turned 50.

The level of pay­ment is re­viewed each year and is ad­justed to take ac­count of in­creases in cost of liv­ing in­fla­tion and wages. When wages in­crease, NZ Su­per is ad­justed so that it stays be­tween 66 per cent to 72.5 per cent of av­er­age or­di­nary time earn­ings af­ter tax.

The amount of money you’ll need in re­tire­ment is de­ter­mined by, how many years you will have in re­tire­ment, the life­style you want to have, whether you are sin­gle or liv­ing with a part­ner and whether you aim to own your own home or rent when you re­tire

These days, peo­ple are liv­ing longer. On av­er­age, 65 year old men can ex­pect to live till they’re 81 and 65 year old women till they’re 84. In the fu­ture, we’ll prob­a­bly live even longer.

Of course more peo­ple may be work­ing be­yond the age of 65. But let’s as­sume you still plan to re­tire at 65. You need to save to pro­vide the in­come you want for 20 years.

That’s a long time, so work­ing out how much you’ll need is im­por­tant if you want to make sure you’ll have enough money in the fu­ture.

You prob­a­bly don’t want to lower your stan­dard of liv­ing when you re­tire – af­ter all you won’t want to stop eat­ing and drink­ing, tak­ing hol­i­days, buy­ing clothes, vis­it­ing friends or rel­a­tives, or en­joy­ing your­self in other ways.

But how much is enough? One way is to base your an­nual re­tire­ment in­come needs on 70 per cent of the an­nual in­come you ex­pect to be re­ceiv­ing just be­fore you re­tire. If you’re well away from re­tire­ment, just take 70 per cent of to­day’s pay.

Next de­cide whether home own­er­ship or rent­ing is bet­ter for you – this will af­fect the amount of sav­ings you need when you re­tire.

If you rent, you’ll need sub­stan­tially more sav­ings to pay the rent but you won’t have cap­i­tal tied up in a home.

One of your aims should be to re­duce the risk of fi­nan­cially un­pleas­ant things hap­pen­ing to you af­ter you stop work­ing. Own­ing the place you live in, debt-free, will re­duce those risks.

For most peo­ple, there will be a gap be­tween the an­nual in­come that New Zealand Su­per­an­nu­a­tion pro­vides and the an­nual in­come they want in re­tire­ment. This gap needs to be filled by their own pri­vate sources of money.

Ba­si­cally this comes down to ei­ther sav­ings or em­ploy­ment.

Most peo­ple end up re­ly­ing on New Zealand Su­per­an­nu­a­tion and their own sav­ings for re­tire­ment in­come.

Even if you can’t save reg­u­larly, try to put aside a few dol­lars to build up a small nest egg.

Even $10,000 or $20,000 in the bank when you re­tire will make a big dif­fer­ence.

The to­tal amount of pri­vate sav­ings you need will de­pend on whether you want to use just the in­come (such as in­ter­est) from your sav­ings, or whether you in­tend to use in­ter­est and part of the lump sum (cap­i­tal).

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