Do I have enough superannuation to retire?
If your retirement years are coming up, then chances are you’re starting to wonder if you have enough to retire on – and how much you can earn on the pension.
These are valid questions, especially as studies show Kiwis often spend more in retirement than they’d expected to.
Here’s some tips about how much super you may need, what affects your super, setting goals for retirement, and how to enjoy a comfortable retirement.
How much can I potentially receive on the pension?
It’s a good question. Once you reach 65, the New Zealand Superannuation qualifies you for $1,076.48 per fortnight before tax as a single, or $817.32 per person per fortnight before tax if you’re living with a partner. Your super is paid fortnightly and you can apply for it if you’re already 65, or if your 65th birthday falls in the next 12 weeks.
Our pension is pretty generous compared to other countries, and it’s true that some people do manage to live on just the pension alone. But if you want a retirement where you can spend a more on things such as eating out regularly and travel, there may still be a gap between what the pension provides and how much you’ll need to add with your own savings.
And those amounts differ for everyone depending on their age, current income, assets, super balance and any inheritances they may have coming.
How much should you aim to live on?
According to our Retirement Living Report, most pre-retirees don’t have a financial plan for retirement – and if there is a plan in place, it’s generally quite vague.
If you’re a couple living a no-frills retirement lifestyle, research indicates you’d need $931 per week living in a central location or a bit less – $800 per week – if you’re living in the regions.
For a comfortable lifestyle, you’d need $1,470 per week living in a city or $1,176 in a regional area.
What impacts a comfortable retirement?
If you’re facing retirement with a mortgage, that can significantly impact how much you have to live on – which is why many Kiwis prioritise paying off their home before they retire.
The same can be true for other debts, such as credit card debt or personal loans. Ideally, you’ll have a much more comfortable retirement if you’re not factoring in debt repayments.
Having the right insurance could also assist alleviate any financial stress in retirement if something were to happen to you or your partner. It may be worth considering what policies are available.
Factors that impact your super
If you’re receiving a pension from overseas, this can also affect your super payments. If you stay overseas for more than 26 weeks, you will have to apply to continue receiving your payments while you’re away, otherwise they will stop.
If insurance is part of your super, you may want to ask what exactly your premium payments cover, whether it will be enough to pay out for things like funeral costs and what premiums might cost now, and down the track.
Depending on the answers you get, it may be worth considering a life insurance policy that’s separate to the policy your super offers.
How to set goals for retirement
When it comes to preparing for what the retirement journey might look like, only 51% of those interviewed in our Retirement Living Report are feeling on track to retire at their preferred age. For 1 in 3 (38%), the disruption caused by the COVID-19 pandemic has derailed their retirement plans or left them unsure about how they want to approach it.
What can we do about this? The earlier you start in planning for retirement, the better – so start by asking yourself these questions:
- When do I want to retire?
- What are my plans for retirement?
- What kind of lifestyle do I want in retirement – no frills? Comfortable? Luxurious?
- How much money will I need to live on each year?
You might find it helpful to use a retirement saving calculator like this one to determine what you’ll need and see if you’re on track with your savings. If you can, do a practice run of living off your proposed monthly retirement amount to see if it’s realistic, or if you need to go back to the drawing board.
If it’s within your means and retirement is a way off yet, you may wish to look at building wealth in other ways. Seek financial advice on how to invest according to your age, personal circumstances and the level of risk you’re comfy with.
How to potentially maximise your super
If you’re already putting money into your KiwiSaver account, consider the option of bumping it up, if your predictions fall short of what you’d like to save.
The default rate you can contribute to your super is 3 percent, but if you bump it up to 10 percent that’s a nice chunk of change growing your retirement balance – and better yet, your employer must match it (by a contribution of up to 3 percent of your gross salary).
Did you know?
The government also makes an annual contribution to your super to help boost it.
And once you do retire, you may want to consider additional income, such as find out if flexible working arrangements are an option with your employer, which could enable you to retire for the most part, but work a couple of days each week to bring extra income and help your super and your pension payments go further.
Planning is key
Approaching retirement can be an exciting time, but it pays to do a bit of planning and ensure you’ll have enough to fund the lifestyle you’re after.
It’s never too early to start building wealth, boosting your super balance and ensuring your will, finances and insurance such as life insurance is in place – giving you peace of mind for the future.
This article is an opinion only, provided for general information purposes and shouldn’t be considered or relied upon as professional or personal advice. If you have legal, tax, or financial questions, you should contact an appropriate professional.
13 Sep 2022