Current
IRP members
Are You Saving Enough?
Remember
it's important that you reassess how much you are saving
as your financial circumstances change - so you can make
sure you're saving enough for your retirement and that you
will achieve your goal.
If
you're not sure whether you are saving enough, take
a look
at the information we've sourced from the Retirement Commission
- to help you work out how much to save.
When
to start saving
How much to save
Set a savings
goal
How to increase your IRP contributions
Need help?
Experts
believe that in the future, Government-funded
superannuation payments are unlikely to provide enough
money for the lifestyle most people expect and deserve in
their retired years.
The
message is clear - you need to look out for yourself in
retirement.Only
by ensuring that you put aside money today can you be confident
that you'll have enough funds to meet your financial needs
in retirement.
When
to start saving
Now
is the time to start saving for your retirement - the sooner
you start, the easier it is. Compound interest is a powerful
thing - you'll be surprised at how over time it positively
affects your investment.
The
key to it all is, even saving a little every month is better
than saving nothing at all.
How
much to save
There's
an easy way for you to achieve your savings goals - the
Individual Retirement Plan. The IRP allows you to start,
stop and change your contributions whenever you need to.
But remember, the best way to save is to commit yourself
to regular contributions, such as a set monthly contribution
and to increase it according to inflation each year.
Here
are four things to think about when assessing your future
financial needs:
1.When
do you want to retire?
This
affects when and how much money you'll need and where your
funds will come from.You won't be able to receive
NZ Superannuation payments until you're 65 years old. Even
then, they may not be enough to meet your expenses.
2.Where
is your retirement income going to come from?
Let's assume that the current NZ
Superannuation, or some equivalent scheme, will continue to
provide a basic income in retirement.Here are the current
NZ Superannuation payments - would they be enough for you
to live on in your retirement?
| Couple (both qualify) |
$393.56 per week |
$20,465 a year after tax (approx) |
| Single (living alone) |
$255.81 per week |
$13,302 a year after tax (approx) |
| Single (sharing) |
$236.14 per week |
$12,279 a year after tax (approx) |
Source:
Ministry of Social Development, effective 1 April 2005.
Net rates after tax
3.How long will you live in retirement?
In
general, women need to save more than men because they tend
to live longer. But remember, these statistics are averages
so some people will live even longer than shown here. And
the trend is for life expectancy to continue to rise in
future.
| |
Life
Expectancy at Birth - Years |
Life
Expectancy at 65 - Years |
| Males |
Maori |
69.0 |
12.7 |
| Non-Maori |
77.2 |
16.9 |
| Females |
Maori |
73.2 |
15.1 |
| Non-Maori |
81.9 |
20.2 |
Source:
Statistics New Zealand. Based on mortality experience
for
2000-2002.
4.How much money will you need to enjoy the lifestyle
you want?
This depends on the lifestyle you want to
have in retirement and what you expect your cost of living
to be. This is estimated to be 60-70% of your pre-retirement
income (after tax). Try to prepare a budget of your likely
expenses in retirement. Remember to include holidays, travel
and entertainment - you'll have lots more time to do those
things once you retire!
Set
a savings goal
Once
you have considered the four questions above, you can estimate
how much you'll need each year, in addition to NZ Superannuation,
to be able to enjoy the lifestyle you want in retirement.
Take
a look at how much of a lump sum you need to save to afford
20 years of retirement income:
The Annual Income You Want in Retirement |
The Lump Sum You Need to Save Using Interest &
Capital for 20 Years |
5,000 |
78,000 |
$10,000 |
$156,000 |
$15,000 |
$234,000 |
$20,000 |
$312,000 |
$25,000 |
$390,000 |
$30,000 |
$468,000 |
Assumptions:
2.5% compounding rate of return after tax and inflation.
How
much you need to save to achieve that lump sum depends how
far you are from retirement. Remember, compound interest
is a powerful way to save in the long term. So the sooner
you start, the easier it will be.
This
table shows how much you'll need to save every month, depending
on how far away you are from retirement.
| |
YEARS TO RETIREMENT |
| Annual
Income |
5 |
10 |
15 |
20 |
25 |
30 |
35 |
40 |
| $5,000 |
$1,219 |
$572 |
$357 |
$251 |
$188 |
$146 |
$117 |
$95 |
| $10,000 |
$2,439 |
$1,144 |
$715 |
$502 |
$375 |
$292 |
$233 |
$191 |
| $15,000 |
$3,658 |
$1,716 |
$1,072 |
$753 |
$563 |
$438 |
$350 |
$286 |
| $20,000 |
$4,877 |
$2,288 |
$1,430 |
$1,004 |
$751 |
$584 |
$467 |
$381 |
| $25,000 |
$6,096 |
$2,860 |
$1,787 |
$1,254 |
$938 |
$730 |
$583 |
$476 |
| $30,000 |
$7,316 |
$3,432 |
$2,144 |
$1,505 |
$1,126 |
$876 |
$700 |
$572 |
Assumptions: Based on 2.5% compounding real rate of return after
tax and inflation.
Monthly savings figures adjusted for inflation.
Don't
panic! - If you can't save enough right now, you may be
able to save more later on. It is also important to regularly
review your savings.
The Privacy Act restricts us from giving details over the
telephone, but alternatively you can fax a signed request
with your full name, date of birth and member number to Mercer (N.Z.) Limited, the Plan's Administration Manager, on 04 381 0501
and a account balance estimate will be posted to you.
How
to increase your IRP contributions
If
you would like to increase your contributions to the IRP,
simply change your bank payments by completing the downloadable regular
contribution advice and direct debit form [PDF] or talk to your
employer about increasing your salary deductions.
Need
help?
The Retirement Commission has an excellent website
to help you get your money matters sorted - with calculators
to help you build a financial plan to achieve your retirement
savings goals. Reach for your mouse and visit www.sorted.org.nz
Alternatively
you can telephone (0800 477111) or fax (04 9140434) Mercer (N.Z.) Limited, the Plan Administration Manager, for your account
balance details. In either case you will need to provide your
full name, date of birth, and personal member contract number
in order for Mercer to release account details. |
