The “I” word keeps popping up at the moment; Inflation.
What will your money be worth in a years’ time? Or ten? What will you be able to afford by then?
Do you have enough to retire on?
Massey University has released findings around what average households will need to have saved to retire in 2021. They calculate what retirees currently spend to maintain either a ‘no frills’ retirement, or a more fulfilling ‘choices’ lifestyle including some luxuries. Costs are calculated for one and two-person households in metropolitan and provincial areas.
The guidelines calculate a two-person household living in the city would need to have saved $809,000 to fund a ‘choices’ lifestyle, while a couple living in the provinces would need to have saved $511,000. The lump sums required for a ‘choices lifestyle’ for a one-person household are $600,000 and $688,000 for metropolitan and provincial areas respectively.
This is up from an earlier report in 2018, where the ‘choices’ lifestyle for a two-person household in the provinces required $492,000 in savings. That’s a $19K difference in three years – yikes.
KiwiSaver
The gap between what the NZ Super provides and the expenses retired Kiwis must cover is widening, according to the New Zealand Retirement Expenditure Guidelines. This is likely to continue, as the cost of living will continue to rise while the cost of NZ Super becomes less affordable for future taxpayers.
At a very basic level, we can think of KiwiSaver as a way to top that up. For people who have (and are) contributing to the scheme, it creates a way to fill that gap. It’s a bit like using expanding foam to patch something in a home reno – the idea is that if you have those savings, they will stretch and fill the space as needed. It might not be pretty, but it should get the job done. Key word ‘should.’
Now, there’s obviously more factors determining the success of this notion. A major one is time. Firstly, how long do you have before retirement? And how long will your savings need to last once you reach that point? There are also things like your health, current income and level of debt to consider.
There is no ‘retirement age’ in New Zealand. NZ Super is paid from age 65, but you don’t have to stop working to get it. These days, more and more people are working beyond 65 either full-time or part-time.
We are living longer these days. On average, a 49-year-old man can now expect to live until they're 87, and 49-year-old women until they're 89.6. And these figures ignore survivorship bias where those they reach 65 fit and well are an entirely different cohort and are expected to live a lot longer than the average.
In the future, we'll probably live even longer. These figures are based on the latest Statistics New Zealand cohort life tables. Let’s say you plan to retire at 65 - you need to save or have another plan to provide the income we want for 25 years or more, and make sure your money lasts as long as you do.
Bringing it home
If there’s one thing we’ve learned (love it or loathe it) from recent events, it’s that there’s no place like home.
Anecdotally, we hear about people returning to NZ from abroad more now than ever – doubtless with the quintessential quarter acre in mind, although that might be difficult in this housing market. A lot of these people will have had good careers overseas prior to this, potentially for decades.
According to Stats NZ data, we’ve seen a net gain of Kiwis for the first time in decades. This isn’t so much because we have a lot of people returning home; it’s more that NZ has been seen as a safer place to remain for people who would usually leave.
New Zealanders are reportedly the fourth largest migrant community in Australia. Another fun number is that $13.8 billion was held as lost or unclaimed superannuation in accounts across Australia as at 30 June 2020. The mind boggles at how much superannuation is offshore, and subject to unfavourable tax treatments - such as UK Pensions, whereupon repatriation pension holders are slapped with a transfer levy. Many rue not having repatriated it sooner as the Amount taxable and the associated tax charge scales up as the years go by.
Given how many Kiwis are (or were) in Australia, it stands to reason that some of that pot belongs to the ‘re-pats’ who’ve decided to settle themselves back in NZ. In fact, commentary from across the ditch indicates that around 67% of it belongs to Kiwis.
When it comes to schemes like the Australian Super or UK Pension, you’ve already earned the money that’s gone into it. Leaving it behind in another country can be a costly mistake for your future self when you could be using it to work towards your retirement goals.
The way to go
For some, it can be hard thinking about retirement when it’s a way off, but setting and working towards a goal for your retirement today will improve your lifestyle later. While the NZ Super will help us get by in retirement, it’s KiwiSaver that will help to make retirement more fun, comfortable and without money woes.
It’s a good idea to spend some time checking on your progress, reviewing your investments and making sure you’re getting all the KiwiSaver benefits.
Everybody wants to retire as comfortably as possible. Even if it seems a long way off, it pays to start planning for retirement as early as possible. If you need help retrieving your Australian Super/UK Pension or you’re just looking to review and tighten up your retirement planning, the best place to start is by sitting down with trusted financial professionals.
Nick Stewart is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay-based CEFEX certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver solutions.
The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
