It would be a fair bet that anyone 55 or over today will be unaffected – the government have to give people fair warning of any changes, and time to adjust their plans if needed.
It is also a fair bet that people aged 45 to 55 today will see the retirement age gradually increased to 66, and then 67 and so on.
People under 45 are likely to hear about the age being increased to 70 and means testing being brought in – this age group need to lobby their MP’s fiercely to more tax incentives to save.
· you will get government super in full, but maybe later than 65
· your investment funds will run out after 30 years of retirement
· you will get investment returns of 5% pa. after tax*
*To get this return, you will probably need to invest in a conservative to balanced portfolio of bonds, property and shares. To keep risk to a minimum, any investments also need to be well diversified on and offshore.
Cash flow is King before and after retirement
We all need cash flow during our working lives to feed ourselves, and we all know how this works – wages and salaries and so on.
We all need cash flow after we retire to feed ourselves, but until we don’t know how this works until we retire.
How much – single retiree?
A single retired person wanting a comfortable living will need about $35,000 pa.
Government super living alone rate is $19,000.
A shortfall of $16,000 pa.
How much – retired couple ?
A couple wanting a comfortable living will need about $45,000 pa.
Government super joint rate is $28,000 pa.
A shortfall of $17,000 pa.
Inflation is a big issue too
“Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair.” ― Sam Ewing
In retirement, people also spend on;
· $40,000 to upgrade the car 2 to 3 times
· $10,000 for a new roof
· $3,000 per eye for cataracts
· $18,000 to $25,000 for a new hip or knee
· $10,000 or more for someone in your family in distress
· $10,000 to $50,000 in loans to children that don’t come back
· $20,000 to upgrade the kitchen
· $10,000 for a new carpet
· $20,000 to alter house to allow for less mobility
· $???? to help educate grandchildren
You won’t incur all of these, but you will incur some of them.
Investments need to produce the extra income
A single retiree needs $450,000 to $500,000 to produce the extra $16,000 pa., plus pay some of the expenses as above.
A retired coupe needs $470,000 to $530,000 to produce the extra $17,000 pa., plus pay some of the expenses as above.
Assumes a 5% net return, 3% inflation, some of the extra expenses as above, and funds all used up after 30 years in retirement.
Any saving is good saving
A couple age 50 have got the kids largely off their hands, the mortgage largely under control and have surplus income. They start saving $1,000 per month invested in a balanced portfolio earning 6% after tax and fees. By age 67, savings grow to $350,000.
The couple are both in Kiwisaver and make average contributions, the funds earn 6% net return, and should grow to $150,000 to $200,000 in total, again by age 67.
Total savings might be $475,000 to $500,000.
Remember this scenario only stacks up if they get full government superannuation at age 67.
This article was supplied by Alan Clarke who is the author of a book entitled “Retire Richer” which is a practical guide for everyone age 25 to 85.
Alan also writes regular articles on www.acfs.co.nz
Alan is an independent authorised financial adviser (AFA) and his disclosure statement is available on request and free of charge.