Has COVID-19 been a wake-up call and made you think about the kind of life you want in retirement?
For many of us the enforced period of lockdown through Covid-19 has made us think about what’s important in our lives now and in the future. Retirement might be close or far away but either way it’s worth planning for.
What kind of retirement do you want and how much money do you think you'll need to fund it?
The current NZ Super rates after tax are $424 a week ($22,039 a year) if you’re single and living alone, or $652 ($33,906 a year) for qualifying couples. But a study by Massey University researchers found most Kiwis spend more than that in retirement, especially if they live in a big city.
According to the study, a basic “no frills” lifestyle for a single person in Auckland, Wellington or Christchurch was $602 a week, or $574 if they lived in the provinces. A more comfortable lifestyle, with some luxuries and treats, cost $1,190 in a main centre or $831 in the provinces.
For couples, a no frills lifestyle was $899 in the main centres or $640 in the provinces. For a more comfortable lifestyle, couples were spending $1,436 in the main centres or $1,136 in the provinces.
Based on these figures, most of us will need extra income to fill the gap between NZ Super and what we’re likely to spend in retirement.
Even though we’re living through uncertain times, the path to being able to retire the way we want to is likely to be the same as it always has been - to have a plan.
Get started on creating or updating your retirement plan with these four questions.
1. What kind of retirement do you want?
The money you’ll need to fund your retirement will depend on where you want to live, the type of lifestyle you’d like, and how many years you’re likely to have in retirement. There is no one-size-fits-all retirement, so think about your individual needs.
2. How will you fund your retirement?
You can access NZ Super and your KiwiSaver balance when you turn 65. However, that doesn’t necessarily have to be when you give up work or stop contributing to your KiwiSaver account.
If COVID-19 has derailed your finances, you may need to think about changing your retirement goals or working for longer, perhaps by going part-time or taking on a less physically demanding job.
3. Are you making the most of your income?
While many Kiwis are struggling, others have found they’ve actually saved money in lockdown. If your income remained stable, you may have been surprised at how much you were able to save when you weren’t spending anything on your social life or habits like Uber Eats, petrol or bought lunches.
Every little bit helps, so now might be the time to start putting that discretionary spending into saving for the future. You could make a lump sum KiwiSaver contribution, increase your KiwiSaver contribution rate, or consider diversifying into another type of investment to give yourself an extra income stream in retirement.
4. Are you making decisions for the right reasons?
Retirement Commissioner Jane Wrightson urges against making decisions based on fear, as emotional situations can lead to poor financial choices.
For example, people who are struggling as a result of COVID-19 have other options to consider before turning to their KiwiSaver funds as a potential source of short-term income.
“While your circumstances may qualify for withdrawal under significant financial hardship, taking out money now may severely impact your quality of life later,” says Wrightson on the Good Returns blog.
To avoid dipping into your retirement savings, she suggests checking to see what support is available from the Government or your bank, or seeking free budgeting advice from the MoneyTalks helpline.