Each person's ideal retirement lifestyle is different. Whatever
retirement means to you, you'll need a degree of financial security to put
those long-awaited pans into action and ensure that it is a time of
enjoyment and comfort. With KiwiSaver, it has never been easier to start your plan.
The longer you delay starting retirement savings, the more costly it will
become to make such a provision. Generally, our income needs after
retirement change. Mortgages are often paid off, children are raised
and assets are freehold. Your retirement savings goals should take
appropriate assumptions for your circumstances into account and include a
provision for inflation increases so the final value reflects the cost of
living at retirement time.
Delaying saving means you miss out on the power of compounding interest on
your contributions. Let's assume that you earn an annual income of
$30,000. If you base your retirement needs on 70% of your current
after-tax income - you'll need to generate funds to provide around $16,900 a
year. The average life expectancy in retirement is 19 years if you're
a female and 16 years if you are a male. The table below shows the
effect that delaying saving would have on the monthly contributions required
if you wish to retire at age 65 and fund that $16,900 per annum for 19
years.
THE COST OF DELAY:
| Age at which contributions start: |
Monthly contributions in the first year: |
| 20 |
$149.00 |
| 25 |
$196.54 |
| 30 |
$262.59 |
| 35 |
$355.98 |
| 40 |
$495.23 |
| 45 |
$416.66 |
| 50 |
$1,074.56 |
* Monthly contribution amounts are based on a 5% net rate of return for
the duration of the investment period. Costs are included.
There are two aspects to retirement planning:
- The accumulation phase - this is the time in your working life when
regular contributions and/or lump sum investing is made to build up a
maturity account.
- The drawdown phase - once you have generated funds you'll need a
strategy to manage the money you have worked so hard to save.
An adviser can provide you with a personalised needs analysis to help
you understand your options in both phases. You can clarify the
amount you'll need to start a retirement nest egg and find out about your
options for managing the administering these funds to generate a
retirement income when the time comes. They can also help you make
decisions about KiwiSaver, as well as how best to combine KiwiSaver with
other personal savings option to provide balance and flexibility.
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