It’s a scary question isn’t it. Have you even started thinking about how much you’ll need to have saved for your retirement, let alone whether or not it’s enough?
Compulsory saving for retirement (like Kiwisaver for example) is a great idea, but is it going to be enough for when you retire? If your answer to this is ‘I don’t know’, I suggest you find out by talking to a certified financial planner.
Here’s another factor to consider: We’re living longer. It wasn’t that long ago that the life expectancy after retirement at age 65 was only 9 years. Now it can easily be 20 to 30 years, so the number of people potentially outliving their capital is going to be quite significant.
My Longevity has gathered data to help you work out your life expectancy based on your lifestyle rather than actuarial data. Take a few minutes to complete the questionnaire to see what your life expectancy could possibly be. I did mine and unless I get hit by a bus, I potentially will need my retirement fund to last until I am 106!
Let’s wrap some numbers around this question of Have I saved enough for my retirement. Here’s a case study from a certified financial planner.
Our couple have an after tax income of $80,000. They’re in their mid-forties, and the children have left home so they no longer need to support them. They’ve worked hard and are debt free. The house has increased in value over time and is worth $800,000. They have an investment portfolio from an inheritance of $30,000 and have $20,000 so far in Kiwisaver and they plan to continue to contribute to it.
They’re going to top up Kiwisaver to the tune of $1,000 a month now that they have no mortgage to worry about, but they also want to start enjoying life a bit more (ie spend more money on lifestyle) and have a bit of time out. The plan is to retire at 65 on an income of $5,000 per month and take the well-earned overseas holiday.
They sound very well set up for their retirement don’t they? Maybe 15 or 20 years ago when life expectancy was much shorter they would have been. But they’re expected to live into their mid-90’s so their retirement will last about 30 years. They’re potentially going to run out of money around 10 years too soon.
Talk about a reality check. I was with a group of people when this case study was presented. They were stunned. I could see they were thinking about their own financial position and comparing it to our ideal couple and many were, like me, coming up short.
So what could you do? Our financial planner presented 3 options:
- Keep working—in this case, for another 6 years. The additional income and savings will help close the gap.
- Reduce your planned living expenses when you retire. 20% was the reduction needed for this couple.
- Save more. But oh dear, in the case of our couple, they needed to put away 86% more savings—in number terms, an additional $860 per month on top of the $1,000.
As a money mentor it’s point number 3 that was of interest to me. It sounds quite straight forward to cut back spending and increase savings now, to get where you want to be in the future. But it was the least preferred option among the rest of the group.
There were some very creative ideas on how to bridge the gap—a couple of them probably illegal (although they were tongue in cheek). Others mentioned included selling the house and downsizing, winning the lottery or growing your business so you could sell it to fund retirement.
So why is the concept of saving so hard?
If you want to know the answer to this question, register for our workshop. We’ll tell you.