Do you really need $809,000 to retire on?
Every two years Massey University carries out an analysis of how much people need to have invested/saved to be able to retire. The guidelines are based on various assumptions, and as usual, it is vital that you understand what these assumptions are before you start to relate this information to your personal situation.
A key part of our role at Moneyworks is to do a detailed analysis for each of our clients based on their actual situation, and work out how much they need to have invested to have a financial comfortable retirement. These analyses take into account the following factors:
1. Assumption of a freehold home.
2. Adjusting for any health insurance expenditure in the future as costs increase as you get older
3. Allowing for higher expenditure in the first 15 years of retirement.
4. Separate analysis of how much you anticipate spending on travel (as this often reduces as you get older).
5. Assumptions based on four different after tax, after inflation and fees investment returns, so that you can see the impact of investment returns on how long your money will last.
6. A crucial factor is how much you actually spend. We can work this out by you doing a detailed budget, or we can work it out backwards.
This involves working out how much you earn after tax each year (including any bonuses), and how much you save into your KiwiSaver and investments, how much you spend on life insurances that should be gone by the time you finish working, and accounting for any other costs that you don't anticipate having in retirement (for example supporting children, or professional fees).
7. Your personalised analysis will also be based on when you do actually want to retire, and will take into account reduced income over a period of years if you choose to phase into your retirement.
Every persons situation is different. We have clients who are comfortably retired with $130,000 saved, but they live within their means, and other clients where $2,000,000 will only just be enough as they live a different lifestyle.
The most important thing to note is that your retirement number is personal to you, and any numbers (like $809,000) are dependent on their underlying assumptions, which could be quite different to your situation.
Here is some more information on the Massey Survey if you are interested:
The guidelines calculate a two-person household living in the city would need to have saved $809,000 to fund a ‘choices’ lifestyle, while a couple living in the provinces would need to have saved $511,000. The lump sums required for a ‘choices lifestyle’ for a one-person household are $600,000 and $688,000 for metropolitan and provincial areas respectively.
New Zealand Superannuation increased by 3.09 per cent in April 2021 but fell short of covering all of the expenses for most retirees.
Only two-person provincial households living a ‘no frills’ lifestyle come close to being funded by New Zealand Superannuation, however these households would still require savings of $75,000. A metropolitan two-person household with a ‘no frills’ lifestyle would require savings of $195,000 at retirement to supplement their superannuation.
The key inflationary drivers for superannuants for the twelve months ending 30 June 2021 were transport, housing and household utilities.
If you want to find out more about the Massey study, head to www.massey.ac.nz/massey/about-massey/news/article.
If you are interested in working more closely with Moneyworks and having us help you with your retirement planning and managing your money, contact us on contact@moneyworks.co.nz
