Magic number to save to fill retirement shortfall

Kiwis should save a minimum of 10 per cent of their yearly earnings to help close the gap in retirement shortfall, the Financial Services Council (FSC) says.

The not-for-profit organisation which represents investment and insurance companies has released a report, Shaping Futures: Closing the KiwiSaver Gap, based on three pieces of research which looks at the KiwiSaver gap — what is saved and what is needed for a comfortable retirement.

FSC chief executive Richard Klipin recommended Kiwis save between 10 and 15 per cent of their annual earnings to put away for retirement.

“Managing money is a skill,” Klipin said. “Think about the future and don’t underestimate the savings you will need.”

Saving between 10 and 15 per cent of earnings would ensure a good, long-term financial wellbeing, he said.

The report states KiwiSaver, in its current form, is not enough to meet the needs of many retirees.

FSC says Government needs to review the rules on default fund allocation and incentives.

Insights from more than 2000 surveyed New Zealanders reveals the financial fears of younger generations are a reality with retirees.

New Zealanders aged over 65 said they had an average weekly retirement funding shortfall of $218, to live comfortably, while those aged between 18 and 24 said they estimate a weekly shortfall of $205 in retirement.

Most millennials were found to be reliant on KiwiSaver to fund home ownership and retirement, and two thirds were scared of being unable to afford retirement.

Around 70 per cent of all respondents said they would support increasing KiwiSaver base contribution from the current three and four per cent.

Increasing base employer and employee contributions from 6 to 8 per cent would create a 28 per cent increase in savings over a 45-year period, the report stated, and with a 10 per cent contribution, savings would increase by 56 per cent.

Based on a median salary of $48,000 and 6 per cent KiwiSaver contribution, a person will save $141,813 over a 45-year period, increased to 8 per cent, savings jump to $181,233.

A 10 per cent KiwiSaver contribution will result in $220,653 over the same period.