I’m sure a few Millenials choked on their oat milk lattes this week when they read the latest news about how much they’ll need to have saved to enjoy a comfortable retirement.
According to researchers at NZ’s Massey University’s Fin-Ed Centre, if you want to have a retirement that comes with ‘choices,’ you’ll need around $755k in your KiwiSaver or an equivalent savings vehicle.
Oh, and that figure also assumes you have paid your mortgage in full, or you’re living rent-free then retirement.
Given the average amount saved by New Zealanders currently is around $30k, many will be working well past retirement age to afford those flights to Bali or to visit their future grandkids in Australia.
Of course, where you’re at savings-wise depends on a range of factors, not the least of which is how long it is before you actually stop working for a living.
The Financial Markets Authority, which serves up an annual report on KiwiSaver full of juicy stats, provides a nifty breakdown of how many investors are by gender (yes, so passe) and age.
You can see the bulk of them have a long way to go to reach the golden age of 65, and thereof
have plenty of time to pad that nest egg, that will hopefully buy them choices in their golden years.
Most people should be concerned about their current levels of savings, but the reality is most will not have read this latest research or even have a clue who their KiwiSaver provider is, let alone know their balance.
The truth is, numbers scare people. And true to the reptilian brain which we have yet to evolve from, they will run rather than face their fears and take action to deal with a savings shortfall that is potentially avoidable.
The sad reality is that it doesn’t take much effort to figure out the above and set a course of action.
So for those who don’t know, or even know but want to help someone who doesn't, here’s a simple plan:
Your annual KiwiSaver report shows you how much you’re on track to have by age 65 based on your current contribution rates and fund type. This is a conservative estimate, as the FMA introduced a standardised calculation method a few year ago using conservative long-term figures. They did this because some providers rather sneakily for the purposes of luring new customers used sky-high annual figures based on bull market double-digit returns, annualised over 40 years. In other words, they overstated what you’re actually likely to earn over the working life of KiwiSaver when factoring in market cycles and meltdowns, like what we've currently seen. For these long-term projections, they are based on returns of:
4.5% for a Growth Fund
3.5% for a Balanced Fund
2.5% for a Conservative Fund
You can also read some of the FMA's scenarios on their website based on differing income and contribution levels which will give you an idea of how a 3% contribution rate looks long-term to 4% or higher. They also discuss boring but important things like inflation (which, as we now know, matters) as well as the inclusion of superannuation contributions. Also, handy. Pray that's still on offer when you retire.
Okay, so now that you know how much you might expect in retirement, you have a few options for addressing any potential shortfall. Please note: this is not personalised advice, only information for you to consider:
Whatever path you choose is your choice, and comes down to priorities and goals. Whatever you do, don’t use lack of information as an excuse. Everything is out there ready for you to discover. And thanks to more rigorous regulatory enforcement in recent years, the financial services sector can no longer be blamed for making information hard to find or understand. Time to stop looking for scapegoat's and take action.
Amanda is a personal finance expert who draws on Eastern wisdom to help you grow your wealth and wellbeing. Money Matters: Get Your Life & $$$ Sorted is published by Penguin Random House.