Much of the news of late has been occupied by the centre right and specifically the decision to increase the retirement age from 65 years up to 67 years. Don’t worry, this isn’t a political article debating whether I think the change is right or wrong! This isn’t the forum for that.
The important point to note is this change isn’t due to take place until 2040. This means, if you are forty-three years old, you have twenty-two years to sort your own retirement out rather than relying on the government to fund your last years on a pension which struggles to get you to $300 a week. History would suggest this is at least two property cycles! If you were born anywhere after 1975 then you have even more time. Make the right choices and whether the age is 65 or 67 it doesn’t really matter… you can “retire” when you’re good and ready.
There are two significant decisions that you can make right now which will change the quality of your retirement for the better and remove your worry about whether the retirement age is changed or not.
Whilst the KiwiSaver scheme is not guaranteed by the Government, it is heavily regulated by the Financial Markets Authority. There are additional measures in place to make sure KiwiSaver schemes protect investors more so than other schemes. For example, default providers have a special contract with Government that requires them to meet additional reporting requirements, and default providers’ activities and their default investment funds are closely monitored. KiwiSaver not only allows you to earn interest, but if you’re an employee, it grows in value at a rapid pace through your employer matching your contribution (up to 3%). On top of that, the government chucks in a cheeky $521 per year in tax credits. It’s the one savings account you genuinely can’t touch when you’re in desperate need of that new TV or car and therefore it’s the one savings account that will actually make a difference to your future.
Interestingly, the KiwiSaver withdrawal age has not been changed to be in line with the new retirement age. Meaning that despite now retiring at 67, you will still have the ability to withdraw your KiwiSaver at 65. This comes with its negatives though as you could be tempted to use it to fund your lifestyle prior to retirement and then have nothing left when you actually need it…Don’t do this.
Just being in KiwiSaver isn’t enough though. Your age and stage of life will dictate your risk profile, and this should dictate the fund you’re in – for example conservative or growth. Depending on how old you are, the difference between growth and conservative could be hundreds of thousands of dollars come retirement.
As I said above, you’ve got two cycles to go through before the retirement age increases. If you’re already in the Auckland market that could mean the average house price will be closer to $3million (hard to believe).
If you aren’t in the market yet, then look to see what you need to do to get on the ladder. It doesn’t have to be Auckland and it doesn’t have to be a ‘jackpot property’. There are deals to be had if you look hard enough and being in the property market in some way will have a more positive impact on your retirement than not being in the market at all. It’s like the game of monopoly. Starting with Old Kent Road and working your way up is more likely to make you money than waiting to land on Mayfair first try.
If you caught the wave of capital gains over the last 5 years then look at what you can do with that equity to increase future cash flow or capital.
At the end of the day, $300 per week is not sufficient for a quality retirement. Spending the majority of your life working towards a cash flow tight retirement doesn’t need to be the way. Simple choices now will make a significant difference. These are just two potential options but it’s simply about putting control of your future in your hands.