There’s no easy answer to the question ‘how much do I need to retire?’ It depends on a number of factors and everyone is different. So how much do YOU need to retire?
If you do a quick Google search, there are a lot of results claiming that you need a specific amount of money in order to retire comfortably. However, everyone is different and have varying needs. Kim Kardashian will have different expectations than your average Kiwi, so her retirement fund needs are probably higher than most peoples. So how can you figure out what you will need? What do you need to take into account?
What are your personal goals
What do you want to do with your retirement? Do you intend to travel the world, yachting in the Mediterranean and skiing in the Swiss Alps? Maybe your children will have moved overseas and you’ll need to go visit them (and the grandkids). Or maybe you prefer a quiet life, in your quiet town with your pets and vegetable garden to keep you company.
Do you want to be able to help your kids out? Give them a hand with their mortgage? When you die, do you want to leave them an inheritance that helps them with their lives? Figure out what your goals are, and the figures you need will become clearer.
Your lifestyle makes a huge difference to how much money you’re going to need to survive retirement. If you are mortgage free, love vegetable gardening, have solar panels and prefer to take the bus, then you might not need a lot to live comfortably. But the minute you start adding in those extras- even if they aren’t quite Kardashian-esque- then those costs start mounting.
What’s your income going to be?
Do you have income that will continue into retirement? That might mean a rental property or two, dividends from investments, or perhaps you still have an interest in a business. If you are solely relying on the government to provide your living expenses, then you may end up not having enough to retire comfortably on.
What’s your health like?
If you are unwell, it’s likely these issues will continue worsen as you age. Will you or your partner need to go into a home or retirement village? How will you pay for that? Also consider your expected life span. Women live longer than men, so while you may be a couple now, women need to prepare for potentially being alone for a few years.
Assets and debts
Do you have any substantial assets or debts? If you have debt, how will you pay this off? This is important to take into account and you need to create a plan on how you will manage this.
If you have assets, are they protected- do you have insurance? There was a couple whose house in Bexley was written off in the Christchurch earthquakes and the land was red zoned. They had no insurance and so at 70 years old, were left with nothing. Don’t let that be you.
How to figure out how much you’ll need in retirement
Retirement savings:First, do a budget. With your current savings rate, how much will you have saved by the time you hit 65 years old? There are many calculators online to help you figure this out.
Debts and assets:How much debt will you have- or how many assets? In an ideal world, you’ll be debt free but life doesn’t always work that way. If you have debt, you need to factor debt repayment into your calculations.
Income:Now figure out how much income you’re going to have each month.You need to consider any superannuation that you’ll get from the government which is currently around $23,000 per year. This is your income. Add in any income you’ll be having from rentals, investments and dividends.
Predict future costs:Using your crystal ball, try and predict how much money you will require each month. Power, internet, restaurants, travel (thanks to the Gold Card, buses are cheap!), debt repayments and anything else…. Grandchild presents for birthdays and Christmas. A standard piece of advice is that your living expenses will be 70 to 90% of your pre-retirement rates.
Calculate:Take themonthly expenses total off your monthly income. If the number is positive, retirement should be comfortable. If you have a negative number, this shortfall will need to be covered by retirement savings. For example:
Income: NZ Super a month $1,738
Less monthly expenses of $2,500 = $-762 shortfall a month
$-762 a month x 12 months = $-9,144 shortfall a year
Now, men live to be about 80, and women to be about 82, on average. Times that yearly shortfall figure above by the expected years – women, 17, men 15.
$9,144 a year x 17 years = $155, 448 minimum savings needed to survive.
Does this match your projections for what you’re going to have saved by the time you’re 65?
Look at your current savings
It’s likely you’ll have KiwiSaver. Take note of your current savings figure.
How many years do you have left until retirement? Let’s say you’re 35…. 30 years to go! How much do you save every year? If your salary is $60,000 and you save 3%, that’s $1,800 a year. The government contributes about $500 a year, so that’s $2,300 a year.
$2,300 a year x 30 years = $69,000
Add your existing savings of $30,000 and that’s not even $100,000 by the time you retire.
How are you going to survive through retirement?
Start retirement planning now
Contact a financial adviser to find out the best way to save enough for your retirement. It might be as simple as contributing 8% instead of 3% to your KiwiSaver account (yielding $159,000 which is still not a kingly sum but at least you won’t be starving) or you may need to start making some big changes.
Also look at your type of investments. High risk, low risk, which? There is so much to take into account and it depends on how old you are and how much you have saved already. Whatever you do, make sure you act now and start retirement planning while you still have options available to you.