We took the Massey data and calculated how much in savings retired Kiwis might need to live basically or comfortably in retirement.
Massey calculated a retired couple who want to live comfortably will need $57,000 pa. net.
We calculated they will need $600,000 in savings assuming:
- they have a debt free home, or live rent free.
- they will invest in a conservative to balanced fund and get 5% nett return
- they will consume 3% more money each year due to inflation
- their money will run out after 30 years
But what if you only have $300,000?
We will “invent” Bill and Mary and look at how their money and retirement might pan out from age 65 to age 90.
Bill turns age 65 when Mary is 62. They own a $500,000 house in Tauranga (or Hamilton or Napier or Whangarei). Bill get single NZ super of $15,000 and Mary has to wait another 3 years till she turns 65.
Bill decides he will work 4 days a week for another 2 to 3 years until Mary gets NZ super. He earns $40,000 plus his NZ super, a total of $55,000 pa nett.
Between his NZ super and part time income, he earns enough so their $300,000 is left alone to compound for another 3 years, to say $340,000.
Bill then retires and they start to draw down $2,000 per month from their investments. Their income is NZ super of $30,000 pa. plus investment draw of $24,000 pa. – a total of $54,000 pa. nett.
They take a world trip that costs $30,000, and have a great time.
Over the next few years they take trips costing $10,000 to $15,000 pa. and in total they spend $80,000 on travel.
They are also drawing down $24,000 pa from their investments to top up their income too, but their portfolio won’t quite keep up with their income needs.
$12,000 for a new roof
$6,000 for major dental work
$1,500 for a new fridge
$5,000 towards a new hip
$2,000 for a new hot water cylinder
$4,000 major car repair
$15,000 car upgrade x 2
$10,000 emergency loan to children
$30,000 for a caravan - sold for $15,000 ten years later
Simply being alive creates bills.
So all in all, they will run out of money after 10 to 14 years – when Bill is about 80 to 82 and Mary is about 77 to 80.
What are their options now?
They downsize their house and buy a unit and release $100,000 to $150,000. This will top up their investment portfolio, and maintain their income.
At age 85 Bill dies and Mary spends a year regathering herself. A little later on she sells up and moves to a one bedroom flat in a retirement village.
Or she might move to a granny flat on her son’s property.
Hopefully this second move releases another $50,000.
Bill and Mary have managed to have quite a good retirement with savings of $340,000, well under the ideal amount of $600,000 that we calculated last week.
Bill worked a bit longer which helped.
They had a fairly good home that they were able to use as a fall-back position.
Fortunately they were not big spenders, as they could not afford to be.
They had to budget fairly carefully, and get used to watching their money slowly but surely decrease. If and when their money (or yours) finally runs out, it can be very stressful indeed. However the stress can be much reduced by:
- getting advice annually – yes, annually
- before and after retirement – yes, before and after
- using a how-long-will-my-money-last calculator
- using a notebook and working out your total assets quarterly
- realising you will not live forever
A single person, age 65, with a house in Auckland and $50,000 saved – what next?
Supplied by Alan Clarke, financial & retirement adviser, & author.
His 2nd book “The Great NZ Work, Money & Retirement Puzzle” is now available.
Alan is an independent authorised financial adviser (AFA) FSP26532.
His disclosure statement is available on request and free of charge.