The Ultimate Guide to Retirement Planning
Ask anyone who's retired, and they will say to start saving for retirement as soon as you can!
Even if it seems a long way away, it pays to start planning for retirement as early as possible. How much you need to save will depend on your circumstances, but the sooner you start, the better the position you’ll be in when you eventually stop working.
While NZ Super (the government pension) can help get you by, it's your savings and investments that will help to make retirement more comfortable and enjoyable.
In this guide
Calculate how much you will need to retire
Figure out where your retirement money will come from
Should I get rid of debt before retirement?
Are trusts worth it?
Calculate how much you'll need for retirement.
Everyone has different retirement demands. To figure yours out, consider how long you might be retired, what kind of lifestyle you'd like, and where you'll reside.
How many years of retirement should I plan for?
Nowadays, people live longer lives. On average, 65-year-old females can expect to live to 86 years old, and males can expect to live to 83. And then what happens to your retirement funds if you live until 95? You’re going to want to factor that possibility in.
There is no 'retirement age' in New Zealand. NZ Super is paid from the age of 65, but you do not have to quit working to receive it. More and more people are working beyond the age of 65, whether full-time or part-time.
Let’s assume you plan to retire at 65. You would need to save and invest or have another way to supply enough income for 25-30 years or more, while also ensuring that your money is going to last as long as you do.
What type of retirement lifestyle do I want?
How much would it cost you to live in retirement? Some prices may rise (such as healthcare), while others (such as education, clothing, housing, and business trips) may fall (especially if you have children, they will likely be financially independent when you retire).
Would you rather live a no-frills or choices lifestyle? The first is rather simple, while the second is more comfortable, with some extras and bonuses. For example, a couple living in Wellington may have a more flexible lifestyle that costs $1423 per week, whereas a pair living somewhere more rural like Levin may pay less, at $1137.
You should also consider your retirement goals, such as travelling overseas, joining clubs, and attending dinners and shows. Much of this is determined by your 'bucket list'. If you don’t have a bucket list, start with our Goal Planning Worksheet.
Will I rent, have a mortgage, or own my home entirely in retirement?
Renting requires more funds to cover the cost, but you will not have money invested in a property. If you decide to retire with a mortgage, you will need to plan accordingly.
Owning a debt-free home eliminates the danger of rent rises or having to move. You will have more control over your funds, but you will be responsible for maintenance, insurance, and rates.
Being mortgage-free by retirement is an excellent goal to strive toward. Many people in retirement can manage their finances since they no longer have to worry about mortgage payments.
Once you have thought about how you want your retirement life to look, have a play with our Spending Planner and map out how much you want to spend in each area during your retirement.
Determine where your retirement money will come from.
Given that you could be retired for 30 years, you will require a steady income. Most New Zealand residents over 65 receive NZ Super every fortnight.
Approximately 40% of New Zealanders over the age of 65 rely only on NZ Super. However, most retired New Zealanders rely on their savings in addition to NZ Super.
Check out the current rates for NZ Super. Is that enough to survive on?
There will most likely be a difference between the income provided by NZ Super and the income you want in retirement. As a result, when planning for retirement, you'll need to consider other options.
If you know your weekly, fortnightly or monthly retirement expenses, or you utilised our Spending Plan, you can easily find out your income gap by identifying the shortfall between how much the NZ Super will provide you with and your total expenses.
NZ Super
NZ Superannuation is a government-paid pension for most New Zealand residents over 65.
NZ Super benefits all eligible New Zealanders, regardless of income, assets, or taxes paid. Here's all you need to know about New Zealand Super, including this year's rates.
Savings and Investments
You may want to use the money you have saved and invested to fund your retirement years. Use our Savings/Investments Calculator to determine how much to save and invest towards your retirement objectives. Setting long-term goals can help you decide how to invest.
The more reliant you are on your savings, the more conservative or 'protective' your investment strategy should be.
Once you've saved for retirement, you'll need to make smart decisions about how to stretch it out over the next 30 years or more. Our Goal Planning System does a fantastic job of displaying your money in a way that makes ensuring it lasts so simple. Book a chat with an adviser to learn more and see how we can help make your money last.
KiwiSaver
KiwiSaver's unique perks make it an excellent choice for retirement savings.
KiwiSaver members get annual government payments of up to $521 for free, in addition to your contributions and a minimum of 3% of their pay from their employers if they are working. A KiwiSaver provider then invests all of that money, which grows as a result of the returns earned. This extra money means that your savings will yield larger returns than another plan in which you are the sole contributor. This will make it easier to meet your retirement savings target.
When you reach the age of 65 and are ready to utilise your KiwiSaver funds to support your retirement, you can set up regular withdrawals with your provider.
Use our KiwiSaver Calculator to predict your future returns.
Working during retirement.
People continue to work in retirement for a number of reasons: many enjoy the work or need the money, while others may need to stop completely due to health issues. Approximately one-third of Kiwis continue to work after the age of 65. You can continue to work as usual or change your working arrangements, such as flexible hours, part-time or casual jobs, consultancy, or mentorship.
Your NZ Super entitlement is unaffected by your income from paid work. However, it may have an impact on your eligibility for income-tested benefits like the Accommodation Supplement and Disability Allowance. For further information, contact Senior Services at 0800 552 002.
Downsizing Your Home
Selling a property and buying a smaller one in a less expensive neighbourhood can help you save money while still delivering the benefits of home ownership.
You may intend to downsize and relocate to the regions when you retire, but this does not always work out exactly as planned. There are trade-offs to make in terms of social network and access to amenities, so living closer to a city centre may still be better.
Reverse mortgages
If you own a home or other property and need to free up funds for long-term living needs, emergencies, or a significant expense, you can use a reverse mortgage.
You can borrow against your property in a flat payment or draw down the loan as needed. In the meantime, interest payments accumulate. When you die or the property is sold, the full loan plus interest must be returned, resulting in a lesser inheritance.
When considering a reverse mortgage, it is advisable to consult with family and seek independent financial and legal advice. It is critical to understand how the product works and what it may cost (including fees and interest costs). When calculating cost forecasts, you can employ a 'worst-case scenario' approach rather than assuming a property's value will improve. Speak to one of our mortgage experts to see if a reverse mortgage could be for you.
Other ways to generate income from your home
There are other options you can consider to release value from your home:
Rent out part of your home
Take in a boarder
Subdivide your property
Sell your home to family or whānau (while retaining the right to live in it)
Should I get rid of my debt before retiring?
Paying off debt in retirement might be challenging, so make it a goal to be debt-free before you retire. To begin your retirement strategy, prioritise paying off any high-interest debt, such as credit cards or hire purchases.
Whether to pay off the mortgage or not
The next objective is to pay off your mortgage before retiring, but this should not be your primary retirement strategy.
Mortgage interest can exceed after-tax savings returns, with the exception of KiwiSaver due to incentives.
However, there are hazards in delaying major retirement savings until after you've paid off your mortgage. You may end up with a mortgage for longer than expected due to changes in your circumstances, such as illness or job loss, that limit your ability to make repayments. A life-changing event, such as separation, can disrupt your plans.
The short version is that it is ideal to pay off debt, pay off your mortgage, and save for retirement at the same time.
Are trusts worthwhile?
People typically create trusts so that they no longer legally own their home or other assets, but can still use and enjoy them as 'beneficiaries' of the trust. The most frequent forms of trusts used by retirees are family trusts and burial trusts, which should be thoroughly researched beforehand to ensure they perform as intended.
Family trusts
Family trusts entail selling assets to a trust, such as a house. Family trusts can be complicated and time-consuming to manage. It costs money to put them up, and there are continuous legal and accounting expenses.
Prepaid funeral trusts
Prepaid funeral trusts allow you to pay for funeral expenditures in advance. Funeral trusts worth up to $10,000 are not considered assets when Senior Services determines eligibility for the Residential Care Subsidy.