By calculating approximately how much money you’ll need in retirement, you give yourself a savings goal to work towards. The earlier you set this goal, the more likely you are to achieve it. But how much is enough?
A good place to start your retirement planning is to consider how much you’re likely to spend.
According to a report by Massey University, single retirees who live in their own home (in the city), who have paid off their mortgage, and who live a no-frills, frugal lifestyle, will need about $826 a week. By ‘no-frills’ we mean a life without any luxuries such as entertainment, travel or new clothes – enough for the basics like food, shelter, bills, transport and healthcare.
But most Kiwis will want some form of luxury – retirement is meant to be enjoyed, after all – in which case a retirement expenses figure of $1,163 a week will be more appropriate. This will allow you to buy new clothes, travel, treat the grandkids and go out for a meal every now and then.
Another commonly used rule of thumb is 60% of your pre-retirement income. If you earned an annual income of $75,000 per year, you might expect to spend around $45,000 per year ($862 per week) in retirement.
NZ Super can also supplement your KiwiSaver withdrawals, providing well over half of the more frugal budget.
Now that you have an idea of how much money you’ll spend per week, we need to know how many years of retirement you’ll need to budget for – or to put it another way, how long you’re likely to live! It might feel a bit morbid, and there’s no way to get an exact figure, but getting an approximate number is critical to estimating the level of retirement savings you’ll need.
In New Zealand the average life expectancy for both women and men is a little over 80. But it is always rising, and if you make it to 65 the number is even higher: based on current figures, a woman born in 1962 who reaches the age of 65 can then expect to live to 88-90 years of age.
A wealth of other factors play their part, such as lifestyle, genetics and luck. If your parents and grandparents lived to a ripe old age, and you keep fit and don’t smoke, you are likely to live longer than average. The Stats NZ calculator considers a number of relevant factors, along with historical data, to give you a lifespan estimate.
If you’re likely to live longer than average that’s great news, but it also means you need to save more for retirement.
So, the big question: how much do I need to save?
A great place to start is with our KiwiSaver Retirement calculator. It looks at your current KiwiSaver savings, makes a projection on what those savings will be at retirement, then compares your projected annual retirement income against what you’ll need to live your desired lifestyle in retirement: basic, luxurious or somewhere in between.
Once you have your baseline, you can tweak variables such as retirement age, lifespan, KiwiSaver contribution rate, KiwiSaver fund choice and the inclusion of NZ Super to understand how you might reach your goal.
Meet Kayla. She is 21 years old and working 40 hours a week as a Building Surveyor, earning an annual salary of $57,500 a year before tax.
When Kayla starts working at Blue Building Surveyors, she joins KiwiSaver. Money is tight, so Kayla chooses to contribute the minimum of 3% to her KiwiSaver savings account as a starting point. She places it in the AMP Balanced Fund. Blue Building Surveyors match her 3% contribution, per the compulsory employer contribution scheme.
If all these numbers stay the same, and Kayla doesn’t make any withdrawals, by the time she turns 65 she will likely have over $200,000! While $200,000 seems like a lot, it may still not be enough to support Kayla in retirement. It should also be noted that that’s $200K in today's dollars, which will be worth less at retirement, depending on what the inflation rate and cost of living does between now and then.
But if Kayla earns more as her career develops, if she chooses to increase her contributions to 4%, 6%, 8% or 10%, or if she makes additional voluntary lump-sum contributions, her nest egg will grow even larger.
If it appears that you don’t yet have enough savings to enjoy a comfortable retirement, there are ways to ensure that you do. It’s best to identify the issue early, as small changes now can make a big difference in the long run. Here are a few strategies to help boost your KiwiSaver account.
While the minimum is 3% of your income, boosting your contribution savings rate to 4% or 6% can make a huge difference to the level of savings you’ll enjoy when you retire. Going from 3% to 4% now can lead you to enjoying multiple thousands more to spend every year of retirement. If you would like to increase your KiwiSaver contributions, simply notify your employer.
If you’ve come into a bit of money – from a bonus, an inheritance or a Lotto win – it might be worth resisting the temptation to splurge, and let it grow in your KiwiSaver account. There it will be invested on your behalf, so you could end up with more in your account when you are ready to withdraw. You can make lump sum contributions through MyAMP.
New Zealand doesn’t actually have a retirement age – 65 is simply when most Kiwis become eligible to access NZ Super and their KiwiSaver savings. At the moment everyone over 65 gets NZ Super, regardless of what they’re earning
While saying goodbye to the 9-5 grind sounds like a dream, it might pay to keep working past 65. By earning an income after 65, you can continue to grow your nest egg through KiwiSaver contributions and investment returns. Say if you continued to work until you were 70, your KiwiSaver retirement account could look quite different. You could probably save more, which means you’re likely to have more money a week to cover the basics, plus a few luxuries.
Left with a large, empty nest, and needing to boost their retirement savings, many Kiwi retirees choose to downsize their family home for something more modest, and place the proceeds into KiwiSaver.
The money you spend in retirement doesn’t need to be withdrawn exclusively from your KiwiSaver retirement savings. After 65 you’ll gain access to social security benefits, namely NZ Super, which can supplement your KiwiSaver withdrawals.
You can check your fortnightly NZ Super payment rate on the Work and Income website.
How much money do I need for retirement? It’s a big and complex question, but one that the AMP KiwiSaver Calculator makes far simpler to answer. Simply enter a few basic details, like your current age, current income, and current KiwiSaver figures, and the calculator will give you a retirement savings projection, a desired figure, and the difference (shortfall or surplus) between the two!
You can then tweak a number of variables to understand how small changes now can make a big difference in the long run.
Whether you have just begun your KiwiSaver journey or you’re about to retire, it’s never too late to create a savings plan for your post-work future, and our AMP retirement experts are always ready to offer support and advice. Get in touch today:
We recommend speaking to a financial advisor when looking for financial advice. By speaking with a financial advisor, you can find out how your plan is working (or not) for you, and they can provide guidance on some suggested changes if needed.
As an AMP KiwiSaver Scheme customer, you have access to bespoke financial advice, based on your financial situation, whenever you need it, which can be obtained either through AMP or an external adviser. The financial planning advice that can be provided by an internal AMP adviser is limited to AMP products, whereas an external adviser may be able to advise you on a broader range of financial matters.
At AMP we offer dozens of different investment funds, across the spectrum of risk vs reward, from six of New Zealand’s leading fund managers. You can choose up to seven, and your ideal mix will depend on your retirement savings goals and the stage of your KiwiSaver journey you’re currently at.
The more money you contribute to your KiwiSaver, the more money you’ll have to enjoy when you retire. KiwiSaver contributions come in a number of forms: employee contributions, compulsory employer contributions, government contributions and voluntary contributions (regular or lump sum). Learn more here.
KiwiSaver is just one of the investment strategy options available for your retirement savings. If you’re interested in exploring other ways to grow your retirement nest egg, AMP Managed Funds can prove great sources of income, and have the added bonus of no lock-in period, so you can access your money whenever you choose.