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Guest post: A guide to a well planned retirement. Don't panic, get planning
It's fair to say many folks have no idea on how much to save between now and retirement for a comfortable future.
It's also fair to say that NZ Superannuation alone (at present levels) won't cut it in retirement. Studies have shown that current levels of superannuation will cover only essential spending. Even more concerning is that, the bare bones support it does offer, is for those who are mortgage and or rent free. See Massey University's Fin-Ed Centre Report on retirement spending here.
Worldwide, private savings are being heavily encouraged to give retirees dignity in their golden years because of concerns about the sustainability of public pension funds.
The question most grapple with is, 'How Much is Enough?'
It is a matter of perspective but $1 million is considered to be a safe, not extravagant number, by age 65.
Saving somewhere close to $1 million will be difficult for many. Even more challenging when you factor in the savings required after tax and fees use to pay for the management of your savings.
Tax is something you can’t avoid. Fees on the other hand, you have control over and you shouldn’t pay any more than is absolutely necessary.
See how much you could be saving each year in fees through Simplicity here.
If you don’t know how much you may need to live off in retirement, try taking 75% of your last 5 years income or expected income just prior to retirement and use this number as a starting point. You can refine your expectations as you become more confident about your future requirements.
To work out how much you might need in retirement you need to make some assumptions about: how long you will live, the level of return you will receive each year ,and how much you wish to live on. Keep in mind that as you age, spending will generally reduce but there are increased risks with health spending.
The following tables give you an indication of how much you would need to have saved given your expected level of drawings, a flat return and the number of years you may spend in retirement.
Given the assumptions made in our calculations, readers should use these tables as an illustration and guide only. The cells highlighted in orange are for ease of identification only. We have not taken into account the impact of inflation, payments are made at the beginning of the year and capital is consumed over the life of the investment.
Assuming 4% return
|
Years in retirement |
Level of drawings $ |
||||||||
|
10,000 |
15,000 |
20,000 |
25,000 |
30,000 |
40,000 |
50,000 |
60,000 |
70,000 |
|
|
5 |
$46,299 |
$69,448 |
$92,598 |
$115,747 |
$138,897 |
$185,196 |
$231,495 |
$277,794 |
$324,093 |
|
10 |
$84,353 |
$126,530 |
$168,707 |
$210,883 |
$253,060 |
$337,413 |
$421,767 |
$506,120 |
$590,473 |
|
15 |
$115,631 |
$173,447 |
$231,262 |
$289,078 |
$346,894 |
$462,525 |
$578,156 |
$693,787 |
$809,419 |
|
20 |
$141,339 |
$212,009 |
$282,679 |
$353,348 |
$424,018 |
$565,358 |
$706,697 |
$848,036 |
$989,376 |
|
25 |
$162,470 |
$243,704 |
$324,939 |
$406,174 |
$487,409 |
$649,879 |
$812,348 |
$974,818 |
$1,137,287 |
|
30 |
$179,837 |
$269,756 |
$359,674 |
$449,593 |
$539,511 |
$719,349 |
$899,186 |
$1,079,023 |
$1,258,860 |
|
35 |
$194,112 |
$291,168 |
$388,224 |
$485,280 |
$582,336 |
$776,448 |
$970,560 |
$1,164,672 |
$1,358,784 |
Assuming 5% return
|
Years in retirement |
Level of drawings $ |
||||||||
|
10,000 |
15,000 |
20,000 |
25,000 |
30,000 |
40,000 |
50,000 |
60,000 |
70,000 |
|
|
5 |
$45,460 |
$68,189 |
$90,919 |
$113,649 |
$136,379 |
$181,838 |
$227,298 |
$272,757 |
$318,217 |
|
10 |
$81,078 |
$121,617 |
$162,156 |
$202,696 |
$243,235 |
$324,313 |
$405,391 |
$486,469 |
$567,548 |
|
15 |
$108,986 |
$163,480 |
$217,973 |
$272,466 |
$326,959 |
$435,946 |
$544,932 |
$653,918 |
$762,905 |
|
20 |
$130,853 |
$196,280 |
$261,706 |
$327,133 |
$392,560 |
$523,413 |
$654,266 |
$785,119 |
$915,972 |
|
25 |
$147,986 |
$221,980 |
$295,973 |
$369,966 |
$443,959 |
$591,946 |
$739,932 |
$887,919 |
$1,035,905 |
|
30 |
$161,411 |
$242,116 |
$322,821 |
$403,527 |
$484,232 |
$645,643 |
$807,054 |
$968,464 |
$1,129,875 |
|
35 |
$171,929 |
$257,894 |
$343,858 |
$429,823 |
$515,787 |
$687,716 |
$859,645 |
$1,031,574 |
$1,203,503 |
Assuming 6% return
|
Years in retirement |
Level of drawings $ |
||||||||
|
10,000 |
15,000 |
20,000 |
25,000 |
30,000 |
40,000 |
50,000 |
60,000 |
70,000 |
|
|
5 |
$44,651 |
$66,977 |
$89,302 |
$111,628 |
$133,953 |
$178,604 |
$223,255 |
$267,906 |
$312,557 |
|
10 |
$78,017 |
$117,025 |
$156,034 |
$195,042 |
$234,051 |
$312,068 |
$390,085 |
$468,102 |
$546,118 |
|
15 |
$102,950 |
$154,425 |
$205,900 |
$257,375 |
$308,850 |
$411,799 |
$514,749 |
$617,699 |
$720,649 |
|
20 |
$121,581 |
$182,372 |
$243,162 |
$303,953 |
$364,743 |
$486,325 |
$607,906 |
$729,487 |
$851,068 |
|
25 |
$135,504 |
$203,255 |
$271,007 |
$338,759 |
$406,511 |
$542,014 |
$677,518 |
$813,021 |
$948,525 |
|
30 |
$145,907 |
$218,861 |
$291,814 |
$364,768 |
$437,722 |
$583,629 |
$729,536 |
$875,443 |
$1,021,350 |
|
35 |
$153,681 |
$230,522 |
$307,363 |
$384,204 |
$461,044 |
$614,726 |
$768,407 |
$922,088 |
$1,075,770 |
Assuming 7% return
|
Years in retirement |
Level of drawings $ |
||||||||
|
10,000 |
15,000 |
20,000 |
25,000 |
30,000 |
40,000 |
50,000 |
60,000 |
70,000 |
|
|
5 |
$43,872 |
$65,808 |
$87,744 |
$109,680 |
$131,616 |
$175,488 |
$219,361 |
$263,233 |
$307,105 |
|
10 |
$75,152 |
$112,728 |
$150,305 |
$187,881 |
$225,457 |
$300,609 |
$375,762 |
$450,914 |
$526,066 |
|
15 |
$97,455 |
$146,182 |
$194,909 |
$243,637 |
$292,364 |
$389,819 |
$487,273 |
$584,728 |
$682,183 |
|
20 |
$113,356 |
$170,034 |
$226,712 |
$283,390 |
$340,068 |
$453,424 |
$566,780 |
$680,136 |
$793,492 |
|
25 |
$124,693 |
$187,040 |
$249,387 |
$311,733 |
$374,080 |
$498,773 |
$623,467 |
$748,160 |
$872,853 |
|
30 |
$132,777 |
$199,165 |
$265,553 |
$331,942 |
$398,330 |
$531,107 |
$663,884 |
$796,660 |
$929,437 |
|
35 |
$138,540 |
$207,810 |
$277,080 |
$346,350 |
$415,620 |
$554,160 |
$692,700 |
$831,241 |
$969,781 |
If you need to save a considerable amount of money over a short period of time, you can try and increase your contributions or take on more risk to try and grow your savings quicker. Taking on more risk with the hope of making some quick bucks is a bit like going to the casino and placing all your savings on one number or colour on the roulette table. It’s really not that smart.
You are often better off looking at at how much you can save first and try to contribute more to your current strategy. If this is not possible, then you may have to lower your income expectations.
A final word on choosing your KiwiSaver manager...
When choosing your KiwiSaver scheme make sure the manager is aligning their values and philosophy with yours.
Ensuring your KiwiSaver has processes in place to weather adverse market conditions and who maintains regular communication with you is important too. You want a scheme that keeps you informed in both good and bad times.
Fees and performance are important. Don’t focus solely on past performance though as studies show this is a poor predictor of future returns. Consistency in performance is key to growing wealth over the long term.
Fees erode performance and you shouldn’t pay more than you need to. After all, you are trying to grow your savings and keep as much of the profits in your pocket as you can.
If you live to be 100, you'll need it for a dignified retirement.
That's what Simplicity is all about.
This blog was used with permission and you can view the original post here.
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The opinions expressed in this article should not be taken as financial advice, or a recommendation of any financial product. Squirrel shall not be liable or responsible for any information, omissions, or errors present. Any commentary provided are the personal views of the author and are not necessarily representative of the views and opinions of Squirrel. We recommend seeking professional investment and/or mortgage advice before taking any action.
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