Retirement planning is the process of setting goals and strategies for your financial future after you stop working. It involves saving, investing, having a retirement account, and managing your money to ensure that you have enough income and assets to support your desired lifestyle in retirement.
Retirement planning is important because it can help you achieve your personal and financial goals, such as traveling, pursuing hobbies, spending time with family and friends, or leaving a legacy. Retirement planning can also help you prepare for unexpected events, such as inflation, health issues, or market fluctuations, that may affect your retirement income and expenses.
There are different types of retirement savings that you can use for retirement. Some of the most common ones are:
KiwiSaver: This is a voluntary, work-based savings scheme that helps New Zealanders save for retirement. You can choose how much you contribute to your KiwiSaver account, up to a maximum of 10% of your gross salary. Your employer also contributes 3% of your gross salary to your KiwiSaver account. The government also provides annual contributions and incentives to encourage you to save more. You can access your KiwiSaver funds when you reach the age of eligibility for New Zealand Superannuation (currently age 65), or earlier in some circumstances, such as buying your first home or suffering from serious illness.
Superannuation: This is a pension scheme that provides regular payments to retired workers who have contributed to it during their working years. Superannuation schemes can be run by the government, employers, or private providers. The amount of superannuation you receive depends on factors such as your age, years of service, salary, and contribution rate. You can access your superannuation funds when you reach a certain age or meet other criteria, depending on the rules of your scheme.
Personal savings and investments: These are any funds that you save or invest outside of KiwiSaver or superannuation schemes. You can use various vehicles to save and invest your money, such as bank accounts, term deposits, bonds, shares, property, or managed funds. You have more control and flexibility over your personal savings and investments than over KiwiSaver or superannuation schemes. However, you also bear more risk and responsibility for managing them.
Boost Your Retirement Savings
Saving for retirement can seem daunting, but it doesn’t have to be. Here are some steps you can take to start saving for retirement today:
Set a retirement savings goal: The first step is to figure out how much money you will need to retire comfortably. You can use online calculators or tools to estimate your retirement income and expenses, based on factors such as your current age, income, savings, lifestyle, and life expectancy. You can also consult a financial advisor for more personalized advice. Once you have an idea of how much money you will need in retirement, you can work backwards to determine how much you need to save each month or year to reach that goal.
Make a budget and track your spending: The next step is to create a realistic budget that reflects your income and expenses. A budget can help you identify areas where you can save more money or reduce unnecessary spending. You can use apps or software to help you track your spending and monitor your progress. You should also review your budget regularly and make adjustments as needed.
Automate your retirement savings: One of the easiest ways to save for retirement is to automate your savings. This means setting up regular transfers from your bank account to your retirement savings account, such as KiwiSaver or superannuation scheme. You can also ask your employer to deduct a portion of your salary and deposit it directly into your retirement savings account. By automating your savings, you can avoid the temptation to spend the money on other things and ensure that you are saving consistently and regularly.
Invest your retirement savings wisely: Saving alone is not enough; you also need to invest your money wisely to make it grow over time. Investing involves putting your money into assets that generate returns, such as interest, dividends, or capital gains. Investing can help you beat inflation and increase the value of your money in the long term. However, investing also involves risk and volatility; the value of your investments may go up or down depending on market conditions and performance. Therefore, you need to choose investments that suit your risk tolerance, time horizon, and goals.
Get help from a financial advisor: If you are unsure about how to save or invest for retirement, or if you have complex financial situations or goals, you may benefit from getting help from a financial advisor. A financial advisor is a professional who can provide you with advice and guidance on various aspects of retirement planning, such as setting goals, creating a budget, choosing investments, managing risk, and optimizing tax. A financial advisor can also help you monitor and review your retirement plan and make adjustments as needed. You can find a qualified and registered financial advisor through online platforms or referrals from friends or family
Retirement Planning Tips
Here are some tips to help you save more and invest better for retirement:
Start saving early: The earlier you start saving for retirement, the more time you have to grow your money and benefit from compound interest. Compound interest is the process of earning interest on your interest, which can significantly increase the value of your money over time. For example, if you save $100 a month at 5% interest for 40 years, you will end up with $144,959. But if you start saving the same amount 10 years later, you will only have $79,726. That’s a difference of $65,232!
Save as much as you can: The more you save for retirement, the more money you will have to support your lifestyle and goals. You can increase your savings by increasing your income (e.g., getting a raise, working overtime, starting a side hustle) or decreasing your expenses (e.g., cutting down on unnecessary spending, paying off debt, living below your means). You can also take advantage of opportunities to boost your savings, such as employer matching contributions, or windfalls (e.g., bonuses, inheritances, lottery winnings).
Invest your retirement savings wisely: Investing your retirement savings wisely can help you achieve higher returns and grow your money faster. However, investing also involves risk and volatility; the value of your investments may go up or down depending on market conditions and performance. Therefore, you need to choose investments that suit your risk tolerance, time horizon, and goals. You also need to diversify your portfolio across different asset classes (e.g., stocks, bonds, cash), sectors (e.g., technology, health care, energy), and regions (e.g., New Zealand, Australia, US) to reduce your exposure to any single risk factor. You also need to rebalance your portfolio regularly to maintain your desired asset allocation and risk level.
Don’t panic during market downturns: Market downturns are inevitable and unpredictable; they are part of the normal cycle of investing. However, they can also be scary and stressful; they can make you feel anxious and tempted to sell your investments at a loss. However, selling during a market downturn can lock in losses and prevent you from participating in the market recovery. Instead of panicking during market downturns, you should stay calm and stick to your long-term plan. You should also view market downturns as opportunities to buy more quality investments at lower prices.
Stay on track with your retirement savings goals: Saving for retirement is a long-term journey; it requires discipline and perseverance. You should regularly monitor and review your retirement savings progress and compare it with your retirement savings goal. You should also celebrate your milestones and achievements along the way. If you fall behind or face challenges, don’t give up; instead, seek help from a financial advisor. You should also be flexible and adaptable; you may need to adjust your retirement savings plan as your circumstances or goals change
How much you need to save:
Saving for retirement is an important financial decision that requires careful planning and attention. To achieve a comfortable retirement, it is essential to estimate how much money you need to save. One rule of thumb suggests saving at least 70% of your income for retirement. However, the amount you need to save can vary depending on factors such as:
Your desired retirement lifestyle. How much will you spend in retirement? Will you travel, downsize your home, or take up new hobbies?
Your expected retirement age. When do you want to retire?
Your current retirement savings. How much have you saved so far?
Your expected Social Security benefits. How much will you receive from Social Security in retirement?
Therefore, it is important to do your research and make an informed decision about your retirement savings. Building a reasonably sized nest egg can help provide financial stability during your golden years. By calculating your estimated expenses and income in retirement, you can better plan for your future and make decisions that will benefit you in the long run.
Ultimately, investing in your retirement savings now can help ensure a bright and secure financial future. By taking the necessary steps to save today, you can rest easy knowing that you are on the right path towards a comfortable and fulfilling retirement.
Take your investments up a notch:
Invest in index funds:
Index funds are a type of mutual fund or exchange-traded fund (ETF) that tracks a specific market index, such as the S&P 500. Index funds are a low-cost way to invest in a broad range of stocks, which can help to reduce your risk and improve your chances of long-term success.
Consider dollar-cost averaging:
Dollar-cost averaging is a strategy of investing a fixed amount of money into a particular investment on a regular basis, regardless of the market price. This can help you to smooth out your investment costs and reduce your risk.
Reinvest your dividends:
When you receive dividends from stocks or mutual funds, you can choose to reinvest them or take them in cash. Reinvesting your dividends can help your investments grow faster over time.
Take advantage of KiwiSaver employee and government contributions:
Make sure you are enrolled in KiwiSaver and contribute at least 3% of your salary.
Ensure you are making at least the minimum contribution, to make sure you are receiving the maximum government contribution of $521.43 per year.
Consider contributing more than the minimum 3% to take advantage of the employer contribution match, which can significantly boost your savings.
Review your KiwiSaver investment portfolio regularly to ensure it aligns with your goals and risk tolerance.
Avoid withdrawing funds before retirement as much as possible to maximize the benefits of compounding returns over a longer period.
How to save for retirement: Age 50 or older:
Saving for retirement is important at any age, but it can be especially challenging if you're in your 50s or older. After all, you're already behind the eight ball in terms of time, and you may have other financial obligations, such as a mortgage or college tuition for your children.
However, it's not impossible to save for retirement in your 50s or older. With careful planning and a bit of discipline, you can still reach your retirement goals.
Here are a few tips to help you get started:
Make a budget and track your spending:
The first step to saving for retirement is to figure out how much money you have coming in and going out each month. Once you know where your money is going, you can start to make changes to free up more money for savings.
Consider other investment options:
In addition to KiwiSaver, there are a number of other investment options available to New Zealanders. These include term deposits, shares, and managed funds. Talk to a financial advisor to find out which investment options are right for you.
Pay off debt:
If you have any debt, such as credit card debt or a mortgage, make it a priority to pay it off as quickly as possible. This will free up more money each month that you can put towards savings.
Downsize your home:
If you have a large home, consider downsizing to a smaller home. This can free up a significant amount of money that you can put towards retirement savings.
Work part-time in retirement:
If you need to, you can always work part-time in retirement. This can help you supplement your income and make your retirement years more enjoyable.
Out of the box solutions:
In addition to the traditional methods of saving for retirement, there are a number of out-of-the-box solutions that you may want to consider. These include:
Reverse mortgages. A reverse mortgage is a loan that allows you to borrow money against the equity in your home. The money is paid to you in a lump sum, a line of credit, or monthly payments. Reverse mortgages can be a good option for retirees who are struggling to make ends meet, but it's important to understand the risks before you sign up.
Annuities. An annuity is an insurance product that provides you with a guaranteed income stream for life. Annuities can be a good option for retirees who want to ensure that they have a steady stream of income in retirement. However, annuities can be complex and expensive, so it's important to shop around and compare different products before you buy.
Living trusts. A living trust is a legal document that allows you to control your assets after you become incapacitated. Living trusts can be a good option for retirees who want to avoid probate, which is the legal process of distributing assets after someone dies.
When thinking about retirement planning it's important to keep in mind the following factors:
The cost of living in New Zealand is considered to be relatively high, this means that you will potentially have to save more money in order to sustain your desired standard of living.
The New Zealand government provides a relatively low level of retirement benefits, this means that you will need to rely more on your own savings and investments.
The New Zealand economy is considered relatively volatile, this means that you need to be careful about how you invest your money. By keeping these factors in mind, you should be able to write a retirement plan that is relevant to your goals and objectives.
Saving for retirement can be challenging, but it's important to remember that it's never too late to start. With a little effort and planning, you can reach your retirement goals and enjoy a comfortable retirement.
What are retirement accounts?
The most popular retirement account in New Zealand is KiwiSaver. KiwiSaver is a government-backed retirement savings scheme that is open to all New Zealanders aged 18 to age 65. If KiwiSaver members can contribute a minimum of $1,042 per year the government will contribute $521 towards your account.
KiwiSaver funds are invested in a range of assets, including shares, bonds, and cash. Members can choose how their funds are invested, by choosing a conservative, balanced, or growth investment option. KiwiSaver members can withdraw their funds from age 65, be aware that there are penalties for early withdrawals.
In addition to KiwiSaver, there are a number of other retirement accounts available in New Zealand, including:
Personal Retirement Schemes (PRS): PRSs are similar to individual retirement schemes such as KiwiSaver, but they are not government-backed. PRSs offer more flexibility than KiwiSaver, but they also come with more risk.
Defined benefit schemes: Defined benefit schemes are workplace retirement plans that promise to pay a certain amount of money in retirement. Defined benefit schemes are becoming increasingly rare in New Zealand.
Annuities: Annuities are insurance products that provide a guaranteed income in retirement. Annuities can be a good option for people who want a guaranteed income, but they can also be expensive.
When choosing a retirement account, it is important to consider the investment return, your individual circumstances, and your goals. If you are not sure which type of retirement account is right for you, it is a good idea to speak to a financial advisor.
Here are some of the factors to consider when choosing a retirement account:
Your age: If you are young, you may want to choose an account that offers more growth potential. If you are closer to retirement, you may want to choose an account that offers more stability.
Your risk tolerance: How much risk are you comfortable taking with your retirement savings? If you are not comfortable with risk, you may want to choose an account that invests in more conservative assets.
Your investment goals: What are your goals for your retirement savings? Do you want to accumulate a large nest egg? Do you want to generate a guaranteed income in retirement?
Your budget: How much can you afford to contribute to a retirement account each month?
It is important to start saving for retirement as early as possible. The earlier you start saving, the more time your earnings have to grow. Even if you can only save a small amount each month, it will add up over time.
How to Avoid Common Retirement Mistakes
Retirement is a time to relax and enjoy the fruits of your labor. But it can also be a time of financial stress if you haven't planned properly. Here are some common retirement mistakes to avoid:
Not saving enough. The earlier you start saving for retirement, the more time your money has to grow. Even if you can only save a small amount each month, it will add up over time.
Not investing your money wisely. When you're young, you can afford to take on more risk with your investments. But as you get closer to retirement, you'll need to shift your investments to more conservative investments.
Not planning for healthcare costs. Healthcare costs can be a major expense in retirement. Make sure you have a plan in place to cover these costs.
Not taking Social Security benefits at the right time. There are different ways to take Social Security benefits. The best time to take them depends on your individual circumstances.
Not working in retirement. If you can afford to work in retirement, it can help you supplement your income and stay active.
Not getting professional help. A financial advisor can help you create a retirement plan that meets your individual needs.
Not Staying up-to-date on the latest retirement news. This will help you make informed decisions about your retirement savings and investments.
Not Reviewing your retirement plan regularly. As your circumstances change, you may need to make changes to your plan.
Don't be afraid to ask for help. If you are struggling to make ends meet in retirement, there are resources available to help you:
Government assistance: The New Zealand government provides a number of assistance programs for retirees, including the New Zealand Superannuation (NZS) and the Accommodation Supplement. NZS is a universal pension paid to all New Zealanders aged 65 and over who meet certain residency requirements. The Accommodation Supplement is a means-tested payment that helps people with the cost of housing.
Charities: There are a number of charities that provide assistance to retirees, including the Salvation Army and the Presbyterian Support New Zealand. These charities offer a range of services, including financial assistance, food parcels, and social support.
Non-profit organizations: There are a number of non-profit organizations that provide assistance to retirees, including Age Concern New Zealand and the New Zealand Retirement Commission. These organizations offer a range of services, including information and advice, advocacy, and social activities.
If you are struggling to make ends meet in retirement, it is important to reach out for help. There are a number of resources available to help you, and you don't have to go through this alone.
Conclusion
It's never too early or too late to start planning for your retirement. I hope this article has provided you with valuable insights and actionable strategies to help build a secure and fulfilling future. By setting clear goals, creating a budget, and automating savings, you can take confident steps towards a comfortable retirement.
Remember, the key is consistency and discipline. Start saving as much as you can, and stay committed to your retirement savings goals. Take advantage of the retirement savings accounts available to you, like KiwiSaver, and make informed investment decisions to grow your nest egg.
If you're already in your fifties or beyond, don't worry. There are still options available to catch up and secure your retirement.
While the journey to retirement may seem daunting, remember that you're not alone. Seek guidance from a trusted financial advisor who can provide personalized advice tailored to your circumstances.
So, my friends, take action today and pave the way for a bright and worry-free retirement. Your future self will thank you for the steps you are taking now to build a solid financial foundation. You deserve the peace of mind that comes with knowing you've planned for a comfortable and fulfilling retirement.
We hope you found this article helpful and informative. If you have any questions or feedback, please feel free to contact us below.
.avif)
