Retirement planning isn't just a financial task - it's a journey towards your dream life after years of hard work, and believe it or not, it can be fun!
Many New Zealander’s find themselves lost in a sea of numbers, wondering how much they truly need to retire comfortably, and associate financial planning help with high fees and boring discussions. So they procrastinate getting it sorted, year after year, never seeking help with the most important part of their financial world…planning.
This comprehensive guide will demystify the foundations of retirement savings, breaking down complex financial concepts into actionable insights that will empower you to take control of your financial future.
Key Points
Discover the true cost of retirement in New Zealand
Learn personalised strategies for calculating your retirement savings target
Understand multiple income sources beyond traditional savings
Develop a holistic approach to financial planning for your golden years
Understanding Retirement Needs: A Comprehensive Breakdown
1. Current Lifestyle and Expected Expenses
Retirement planning begins with a brutally honest look at your current lifestyle. A (very) general rule of thumb suggests you'll need approximately 60-80% of your pre-retirement income to maintain your standard of living. However, this isn't a one-size-fits-all approach.
Consider your current monthly expenses carefully. Break down your spending into essential and discretionary categories. Essential expenses include housing, food, healthcare, and utilities. Discretionary expenses cover travel, hobbies, dining out, and entertainment.
For the average Kiwi I work with, monthly retirement expenses can range anywhere from $4,000 to $15,000. The way people live and the money they spend varies hugely and depends on a whole bunch of factors but primarily boils down to lifestyle and location. Urban centers like Auckland will naturally have higher living costs compared to smaller towns.
“With living costs varying so broadly, your answer to this question will be truly unique. There’s no normal.”
Key points:
Conduct a detailed expense audit
Project future living costs
Account for inflation (historically around 2-4% annually)
Build a flexible budget that allows for unexpected expenses
There’s no normal expenditure
2. Life Expectancy and Retirement Duration
Our life expectancy in NZ has been steadily increasing. As of 2023, the average life expectancy is around 82 years, with many people living well into their late 80s or 90s. If you retired at 65, and lived until 100, your retirement savings would need to last potentially 35 years, if not more.
Consider your family health history, personal health habits, and current fitness level. A healthy lifestyle can significantly extend your active retirement years. This isn't just about financial planning—it's about planning for quality of life.
When we project your life expectancy, and retirement needs in Planolitix, we use an expectancy of 100 years with the expectation that medical technology should only be improving from here in.
Key points:
Plan for 35 years plus of retirement income
Consider health and lifestyle factors
Build in a financial buffer for unexpected health challenges
Stay physically and mentally active to potentially reduce healthcare costs
3. Income Sources in Retirement
Diversification is key when it comes to retirement income. Don't rely on a single source of funding.
Primary income sources include:
NZ Superannuation (currently around $27,000 annually for a single person or $41,000 for a couple)
Kiwisaver withdrawals
Personal investments
Rental income
Part-time work or consulting
Many retirees are now creating multiple income streams as the cost of living is historically so high. This might mean continuing part-time work, developing a small business, or generating passive income through investments.
It’s important to establish your expectations for how you see yourself spending in retirement at this point of your life so you work backwards to work out how much you’ll need down the track.
Key points:
Explore diverse investment options
Consider passive income strategies
Stay flexible and adaptable
4. Housing and Accommodation Costs
Housing represents a significant portion of retirement expenses. Some retirees choose to downsize, while others prefer to stay in their family home. Each strategy has financial implications and need to be examined against each other using the right tools.
Downsizing can free up significant capital. Example: If you freed up the equivalent of $500,000 (in today’s money) realised from downsizing your home at age 70, this money could be invested to produce an income. Alternatively, staying in your home might mean lower moving costs and emotional comfort.
Consider:
Mortgage status
Home and/or property maintenance costs
Potential rental or boarder incomes
Reverse mortgage options (always seek professional advice if this is you)
Retirement village alternatives
5. Healthcare and Insurance Considerations
Healthcare costs typically increase as we age. While New Zealand's public healthcare system provides significant support, additional private insurance can offer peace of mind.
Note: If you plan to retain your health insurance through your retirement years, you need to plan for the premium cost in your forecasted expenses at that point of your life by understanding what maximum your excess could be with your insurer at that point of your life. The idea is to be self-insuring by that stage by maximising your excess and minimising on the lower cost modules of your cover, like specialists, dental, optical etc. Again, always seek advice around this before implementing any changes.
Estimated annual healthcare costs for retirees can range from $2,000 to $10,000, depending on individual health conditions. Factor in potential costs for:
Regular medical check-ups
Prescription medications
Potential mobility aids
Dental care
Specialist treatments
6. Investment Strategy and Risk Management
Your investment strategy should evolve as you approach retirement. In your 30s and 40s, you might have a higher-risk portfolio. As you near retirement, gradually shift towards more conservative investments.
A balanced approach might look like:
50-60% in stable, low-risk investments
30-40% in moderate-growth assets
10% in slightly higher-risk investments for potential growth
7. Lifestyle and Personal Goals
Retirement isn't just about survival - it's about thriving and living the life you dreamed about. What does your ideal retirement look like? Travel? Hobbies? Have a nice car? Supporting grandchildren?
Budget for:
Travel experiences
Continuing education
Hobbies and personal development
Potential family support
Conclusion
Retirement planning is a deeply personal journey. There's no universal magic number, but with careful planning, strategic thinking, and ongoing adaptation, you can create a robust financial plan that supports your desired lifestyle.
These days we’re lucky enough to have access to technology which takes the guesswork out of your future planning and proofing. Reach out to me if you’d like one on one strategy session where we can go through how Planolitix can help your future, and therefor your ‘now’.
FAQs
Q: How much should I have saved by retirement?
A: Aim for 10-12 times your annual salary by retirement age. For a $100,000 annual income, target $1,000,000 to $1,200,000 in total savings.
Q: When should I start planning?
A: Ideally, start in your 20s or 30s. However, it's never too late to begin. The key is to start now and be consistent.
Q: Can I retire earlier than 65?
A: Yes, but it requires aggressive saving, smart investments, and a go getter attitude!
Q: How often should I review my retirement plan?
A: We advise our clients to review annually to bi-annually, or after major life changes.
Thanks for reading!
Chris George | Financial Adviser