Preparing for retirement

Personal Finance

Why you should be planning for a 30 year retirement, with reduced NZ Super

17th May 12, 11:02am by David Chaston

If you were born in 2011 you could expect to live until you are 81. That's almost one year more than if your were born in 2008 - according to the "Abridged Life Tables" published yesterday by Statistics NZ.

Life expectancy is an important consideration when you are thinking about how much savings you will need when you retire.

But the real problem with using the official data is that it's based on death statistics - that is, based on the data of those who are dying. And it is also important to remember, the official data is the 'average' - but half of us will actually live longer than this reported average.

Life expectancy at birth is the most publicised data, but that isn't actually useful for you and me.

These recently published tables do give a useful starting point to consider how long we should plan for retirement - and give useful background to the official reluctance to consider raising the retirement age.

Firstly, here is what the official data shows:

If you are now ...	you can expect	so you need to plan a
	to live to at least ...	retirement of at least
25	81	16 years
35	82	17
45	82	17
55	83	18
65	84	19
75	87	22
85	91	26
Data based on 2009-2011 Abridged Life Tables published by StatisticsNZ

The older you get, the longer you can expect to be retired. And women live slightly longer than men, although this variance is reducing as men catch up.

That means, based on current data, if you think you may live till you are 85, you had better have enough put aside to last comfortably for at least 26 years.

In anyone's definition, 26 years is a long-term financial plan. And remember you won't be able to make too many mistakes because at that age, there is no 'starting over'.

Another aspect that needs to be remembered is that each time they publish this data, the timeframes get extended.

What will they be when you actually retire? From 2008 to 2011 those timeframes extended by about half a year of life expectancy. It's only an arithmetic guess, but if that level of improvement continues, by the time a 35 year old retires, they will be looking at needing a further five years of life expectancy in their retirement planning.

Factored on to the above table, perhaps you should be planning for a 30+ year retirement.

Put another way, that means saving enough now to live without a wage for 30 years.

That makes retirement saving a bigger financial project than buying a home, and a longer project than paying off a mortgage.

Do you have a workable plan?

Would you be able to accommodate it if NZ Super doesn't last at current levels?

One place to start is our KiwiSaver calculator »

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15 Comments

by Andy Rodgers | 17th May 12, 11:38am 1337211524

All the oldies need to do is to keep voting for John Key, he will make sure that they have a prosperous retirement - yeah right!

by ngakonui gold | 17th May 12, 11:46am 1337211963

forestry seems a good long term investment but people keep saying i can't wait that long.

meanwhile the tree just keeps on growing and the land keeps growing in value

by Weka | 17th May 12, 12:57pm 1337216264

Personally I like the idea of taking charge of my own retirement well before it happens and planning ahead. Kiwisaver is far too formally structured for my liking and what control do you have over your money on a day-to-day basis - not much until you reach 65. Think of a structured savings plan where you make the decisions and have complete control, taking advantage of opportunities/investments well before you are old enough to retire. I was pretty ignorant of all things financial and would happily moan about the possible lack of NZ super and having to save for retirement, but I decided to confront those fears and give myself the best possible chance for a secure retirement.

by printer8 | 18th May 12, 2:26pm 1337308002

I think you miss the point; KiwiSaver should be only one part of a retirement scheme and not a retirement plan in its self.

Given the employer contribution (albeit only for employees), the start-up contribution, and the tax credit advantages, there is little that can promise such returns other than a Nigerian scam. To dismiss KiwiSaver is to dismiss a relatively safe investment which would have a far better return compared to any other investment with a similar risk profile and so to outright dismiss seems at best a rash statement.

It is great that we now approach 2,000,000 KiwiSaver, but what is of concern to me is that many (and your comments are implicit of this) perceive KiwiSaver as a retirement plan on its own and that it will be sufficient for their retirement.

I have been fortunate to have had over 30 years in the Public Service (OK you cynics!!!) and contributed to the old Government Superannuation Scheme at 6.5% which has been matched by my employers with a further contribution of 6.5%. As I approach retirement I still find what is a rock solid formula based return calculated on a set nominal 7% tax free inflation adjusted return of over $35,000 tax free per annum will still be insufficient on its own to guarantee me a comfortable retirement given the uncertainty of the future of national superannuation.

I therefore do not see a plan involving an employee contribution of 2 or 4% and an employer contribution of 2% to be anything but insufficient. Sadly, many seem to be under this impression.

by Gummy Bear Hero | 18th May 12, 2:48pm 1337309295

Weka is correct . The only ones who will gain an enriched retirement from KiwiSaver are the fund managers and tax advisors ....

KS is , as Gareth Morgan accurately noted , a monumental waste of time & money for the average Joe & Joanna Kiwi ......

..... the " investors " will be fleeced by the fees , and will retire to a gruelling retirement feasting on HomeBrand baked beans and cat food ......

by Black Celebration | 18th May 12, 3:22pm 1337311358

With my KiwiSaver, the fees are about 0.50%p.a. all up. Yes, I wish the fees were zero and I wish I was making 10%+ investment growth each and every year...but even so...I don't feel particularly fleeced by the fees. What am I missing?

by Gummy Bear Hero | 18th May 12, 3:33pm 1337312027

Are you prepared to tell us who your KS provider is , and which fund you are in ?

by Black Celebration | 18th May 12, 4:25pm 1337315109

Sure. It's the ASB Conservative Fund.

by Gummy Bear Hero | 18th May 12, 4:39pm 1337315946

It's 80 % in cash ! ...... you can go down to the bank , make a deposit , and not have to pay any fee for that ...

by Black Celebration | 18th May 12, 4:44pm 1337316254

Eh? It's 25% cash, 55% fixed interest and 20% shares. If I put the money in the bank, I wouldn't have had the employer contributions, the $1,000 kickstart or the member tax credits.

by Gummy Bear Hero | 18th May 12, 4:55pm 1337316958

Yes , 80 % in cash ! .... just 20 % in equity , actual growth investments ....

..... as you point out , all the " freebies " ( put in by Michael Cullen , and paid out of your own PAYE tax ) are the only incentive to be in that zone ........

You'd do better to buy a rental & to negatively gear it !

by Black Celebration | 18th May 12, 5:30pm 1337319003

Thanks! I have seen the light :-)

by printer8 | 18th May 12, 3:48pm 1337312916

I don’t disagree with you regarding fund managers – I have commented on this on a couple of occasions. The culture amongst fund-managers is one of arrogance in which the interests of the investors is a distant third behing themselves and the fundowners.

However, given that an employee doubles their amount of their investment by means of employer contribution, and then some with tax credits, then one would have to do more than twice as well as a fund manager. Given that most of us are not fulltime fund management I would hope that they would have an advantage on me despite the multi-clipping of investment funds as they pass through the investment chain.

But keep in mind my point – KiwiSaver is not a retirement plan in itself, but rather it should be part of a plan. It has often been said (no doubt by fund managers!) that one should be looking to save 6 to 10% of one’s income for retirement. Given that KiwiSaver contributions are currently 2% (or is it 3% - I’m on a contributions holiday just making annual lump sum payments) that still leaves 4 to 6% of one’s income to invest elsewhere and have a diversified plan. At least one then has a diversified investment portfolio and at the very least this would give you a benchmark to test yourself (and if you are really that good and can do better than twice the fund managers, go on a contributions holiday and do the lot yourself).

by Wolly | 17th May 12, 3:30pm 1337225404

No questions at all on what you want out of the 30 years in retirement....why squat in an urban slum like Auckland or wgtn when you can live it up on the West Coast...up the top it's quite tropical....you never know what you might discover growing down the back of the bush out of sight of the road.

by Gummy Bear Hero | 18th May 12, 3:38pm 1337312327

...... we should put our heads ( and our cauldrons ) together Wolly , and come up with a best-seller cookbook to aid the future retirees of NZ :

" 101 Ways to Create Haute Cuisine from a Tin of Cat Food "