We find that our clients definition of retirement is rapidly changing. Many of our clients choose to continue working and gradually 'ease out' of the workforce at the end of their careers. Or, they choose to change occupations and take up some less stressful work that still provides an income stream.
With the universal NZ Superannuation system, where you receive an income in retirement when you reach age 65 regardless of how long you have worked, how much you have earned, how many other assets or income you have, achieving a financial comfortable retirement can be easier than in other countries. Although the NZ Superannuation income gives a strong base underlay to cover expenses, none of our clients have been able to live entirely off NZ Superannuation income.
This is why it is important to save money to top up the NZ Superannuation income.
How much do you actually need to live off in retirement in New Zealand?
Research released this week shows how much people in New Zealand need to live off. This is the first step in working out how much you need to have invested to have a comfortable retirement.
The Massey University FinEd and Workplace Savings Research creates two categories: a No Frills retirement income and a Choices retirement income.
The research also breaks the income that you require up into 'Metro' and 'Provincial' categories - it costs more to live in a major city. Further divisions are made based on a 1 person or 2 person household. Here are the summaries of the calculations which are in AFTER TAX dollars:
|1 person household
|$489.77 week ($25,468.04 pa)
|$418.91 week ($21,783.32 pa)
|$754.03 week ($39,209.56 pa)
|$782.02 week ($40,665.04 pa)
|2 people household
|$677.83 week ($35,247.16 pa)#
|$522.93 week ($27,192.36 pa)#
|$1091.77 week ($56,772.04 pa)
|$1012.32 week ($52,640.64 pa)
#Please note that in the report tables these numbers are the opposite way around, which doesn’t make any sense, so I have swapped them over for this table.
These numbers are consistent with what our clients calculations are. The 'choices' option can increase by another $40,000-$60,000 pa depending on which choices you make.
Important Notes to consider:
1. While the NZ Superannuation income for a couple is twice the income for a single person (currently just under $30,000 pa after tax), if one person dies earlier, then this provides a big gap in the assumed income, and the costs don't fall proportionately.
2.If you are single and living alone, you receive a 'living alone allowance' with your NZ Super which brings your single persons income to just under $20,000 after tax.
3. When you are working out how much you think you will spend in retirement, it could be useful to assume that you will spend more in the initial healthier years after you finish work.
You can read the full report here 15 11 Massey FinEd NZ Retirement Expenditure Guidelines
What are the next steps in working out what lump sum you need?
Once you have worked out how much income you require in retirement, you then need to make an estimate of how long you are going to live for. You also need to calculate what level of inheritance you wish to leave for your family (many people are happy to leave a freehold family home and use up all their investments).
You need to calculate in any additional travel you wish to take, add in costs for replacing whiteware and vehicles. You can then adjust the calculations for any income that you are likely to receive (from a private pension, or from working or any inheritance that you expect to get.)
At the end of the process, you will have a target lump sum that you can aim to accumulate at your 'retirement' date.
How can you work all this out?
For our clients that we work with on a membership fee basis, we work this out regularly for them, taking into accounts as many variables as possible. To work this out yourself, a starting point is the sorted calculators available at https://www.sorted.org.nz/calculators in conjunction with the ANZ Retirement Calculator. However, these calculators may be limited in their ability to take into account different scenarios, where the value of an experienced financial planner comes in.
If you think it is time that you started working more closely with a financial planner at Moneyworks to work out your investment and financial strategy, contact us by emailing us here.
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By Carey Church