Looking
to Invest for Your Retirement?
Why and How Much to Save for Retirement?
When
to start saving
How much to save
Set a savings goal
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.
The
information on the following pages is sourced from the Retirement
Commission and we would like to acknowledge the excellent
information the Office produces.
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 will be able to receive
NZ Superannuation payments once you're 65 years old, but 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) |
$462.74 per week |
$24,062 a year after tax (approx) |
| Single (living alone) |
$297.79 per week |
$15,485 a year after tax (approx) |
| Single (sharing) |
$275.80 per week |
$14,342 a year after tax (approx)
|
Source:
Ministry of Social Development, effective 1 April 2007.
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 and 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.
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
