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ARTICLES > How Much Do I Need To Retire?
How Much Do I Need To Retire?
 Many of us joke about retiring and spending our days relaxing and doing the things we always wanted to do – but surprisingly few of us could afford to actually live this way because we don’t think seriously about how we'll survive financially in those retirement years until it's too late.
► Here’s a few facts worth considering;
• Most New Zealanders retire on superannuation. 75% of retirees live on less than $21,000 a year.
• Most New Zealanders reach retirement in a worse position than they hoped for.
► For every 100 people who entered the workforce 45 years ago;
• 1 is rich.
• 16 are independent without being rich.
• 5 are still working.
• 20 are dead.
• 58 are living solely on New Zealand superannuation.
The challenge is clear – we need to plan for retirement and the sooner the better.
The big question concerning retirement is, how much money will you need?
The answer depends on a number of factors such as;
• What age do you intend to retire at or, how many years of retirement will you have?
• What sort of lifestyle do you wish to have in retirement?
• Do you have a mortgage or are you mortgage free? Or are you renting?
• What is your marital situation?
What age will you retire?
While some of us make bold claims about never retiring, it seems to be in the psyche of New Zealanders to finish full-time work at an age of about 65 years. With projected age expectancies today, that means most of us will have around 20 retirement years to provide for.
So, we need to have enough money saved or invested to support 20 years worth of the lifestyle we desire.
What sort of lifestyle do you wish to maintain in retirement?
 Two points need to be made here;
First, times have changed. Retirees are more active than they once were. The days of retiring to the garden and living a relaxing lifestyle are gone. Most of us have a list of things we’d like to do in retirement and some of them (e.g. travel or hobbies) are pretty expensive.
Second, as well as doing these extra things, most of us want to maintain at least our present standard of living when we retire.
Do you have a mortgage or are you mortgage free?
Again times have changed. There was a time when a couple married and had a mortgage and family in close succession. As the family grew they may have changed homes once in their lifetime but they were pretty stable in all aspects of life – and that includes the paying off of debt. Once lumbered with a mortgage, New Zealanders were great at making monthly repayments ensuring they paid it off a few years before retirement.
These days we have a more casual attitude to the repayment of debt. We chip away at our mortgage but then, if we decide there is something we’d like, we get a loan top-up and start all over again.
There’s nothing wrong with topping up your mortgage should you require it, however, one eye needs to be kept on the goal most New Zealanders, and ALL MortgagePlan and M-Power clients, aspire to – to be debt free! And, sadly, there are more and more New Zealanders who are reaching retirement with large sums still owing on their mortgages. Without an income these repayments become crippling and house downgrades (often severe downgrades) are required.
This is a reminder of the importance of making the most of our working years to pay off our debt.
So, how much will we need for our retirement?
There are a few ways to work this out, here are two;
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Work out a basic budget for a year of your retirement and multiply it by 20 (the expected number of years you will be retired). So, if you think you’ll need $20,000 a year over and above the National Superannuation payments, you need to have accumulated; $20,000 x 20 years = $400,000 worth of useable assets, investments or savings by the time you retire. |
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Another way to work this out is to calculate your nett worth and divide by 20. So if you currently have $400,000 worth of savings and assets; $400,000 ÷ 20 years is $20,000. That means, if you retired right now, you’d have $20,000 per year as retirement income. (Of course, these figures take neither inflation nor investment income into account). |
Just remember – your home is not a 100% useable asset because you will still need to live somewhere.
Conclusion.
Believe it or not, many New Zealanders have given no thought to how they will survive financially after retirement. Others procrastinate because retirement seems so far away. One of the most common questions we are asked about retirement is, “When should I begin planning for it?” The answer is, whatever your age, “now.”
 Imagine if you had, say, $400 a week to put towards building and asset-base for your retirement. That is why paying off our mortgages and any other debt must be our first step towards planning for retirement. Being debt-free immediately increases our disposable income. This is the income that can then be used to build an asset base for those retirement years.
The second step, once debt free, is to determine what will be done to build that asset base. There are numerous possibilities for investing money - a rental property, the share market, a conventional bank, some business venture. I'd suggest anyone with money to invest gets some sort of investment advice. After all, this is your retirement money and it needs to last a long time.
To read the article in this newsletter that tells you the current Government Superannuation rates - Click here.
To read our Resource Centre article, All About Home Equity (Reverse) Mortgages - Click here.
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