Every little helps when planning retirement
Figuring out future financials can be a daunting process, writes Martin Hawes.
Claire Matthews at Massey University continues to do good work on retirement savings. Her latest piece, out last week, sets the bar for how much you need for a comfortable living in retirement.
This latest study shows that to live in a big city in retirement, you need $486,000 of savings to fund a ‘‘comfortable’’ lifestyle. Note that this $486,000 of retirement savings funds a ‘‘comfortable’’ lifestyle, which according to Matthews, allows people to ‘‘buy steak or biscuits and a wider range of vegetables’’. This $486,000 when invested, allows an additional $503 per week to fill the spending gap after NZ Super.
Although retirement in the regions is cheaper, most people have limited choice regarding where they live: they want or need to be close to family and if the big city is where family live, the retirees will live there also.
You need to be careful about all these studies and figures: they are averages and contain a lot of assumptions which may or may not apply to you. We all live differently before retirement - and in retirement we continue to live differently.
Nevertheless, the studies Matthews does are good and useful and we should take notice.
Unfortunately, many people will look at the headline figure of $486,000 and give up – this big sum seems a goal too far.
But giving up is not a good strategy. Those who are already retired will quickly tell you that every little bit helps – even if you cannot achieve $486,000, having something is much better than having nothing.
To accumulate that $486,000, remember that the savings rate usually beats the investment rate. This means the amount that you can put away is more important than the rate of return that you get on your investments. This is not an attractive message but it is true.
Certainly, the rate of return on your savings and investments is important, but nothing like as important as the amount you can save. Few people hit their goals by getting outstanding rates of return – most get there by saving assiduously.
I do not like being the bearer of bad news, but if you look at the numbers it is clear: get saving as early and as much as possible. To achieve that $486,000, you will have to give something up because saving always means foregoing something so you can have more in the future. Fortunately, KiwiSaver and other savings plans make this relatively easy because the money goes to savings before you even see it.
The best time to start is always yesterday – but if you did not start yesterday, now is best.
Martin Hawes is the Chair of the Summer KiwiSaver Investment Committee. The Summer KiwiSaver Scheme is managed by Forsyth Barr Investment Management Ltd. You can obtain the Scheme’s product disclosure statement and further information at www.summer.co.nz. Martin is an authorised financial adviser.