Planning for retirement is of the utmost importance. Whilst you need to ensure you have enough savings to enjoy yourself, there’s a lot of uncertainty and doubt about just how much you need to save and how you should be saving. To try and provide some clarity, I’ve pulled together some of the persistent myths I have come across over the last couple of years, as well as their actual reality.
Myth 1 – Everyone needs to save $x before they retire
Everyone has varying needs, wants and expenses. As such, saying you need to hit a specific dollar amount before retiring is, to be frank, rubbish. If you’re the kind of person who wants to live a modest retirement, your annual expenses are going to be much lower than someone who wants to live more extravagantly.
What you should be doing is deciding what type of retirement you want and then working out a plan on how you can get there. That’s where talking to an adviser can make all the difference.
Myth 2 - You’ll only have 70% of your pre-retirement expenses
In theory you’re going to be spending less when you retire. Perhaps you're not saving anymore, no travel costs for work etc and you might even decide to downsize your home which typically translates into less home expenses. While this is all typically true, don’t forget that your lifestyle isn’t necessarily staying exactly the same, either. Perhaps you intend to travel more now that you don’t have to work, or you are getting back in to long lost hobbies – all things that can add to your budget.
Similar to the first point, it ultimately comes back to planning for the type of retirement you want, and ensuring all aspects are covered. To avoid being caught out, think about it in advance.
Myth 3 – I’m in KiwiSaver so I don’t need to do anything else
This is the biggest myth of all. I love KiwiSaver – lots of free money and great investment options at low cost. But, all this is useless unless you have an idea of what your KiwiSaver account is going to give you at retirement otherwise how do you know if you will have enough?
Speak to a KiwiSaver expert (ideally not the banks!) and get advice on if you are in the best KiwiSaver for your needs, are in the correct fund and most importantly, whether you are actually on track for the retirement you think you are going to get.
Myth 4 – If I haven’t saved enough, I’ll just keep on working
A great idea but it may not actually be your choice. You want to work part-time but your employer won’t let you or perhaps your health means that you can no longer work.
The best option is to save more earlier, be it higher KiwiSaver contributions, passive income or elsewhere, so that when you reach retirement age, you can actually retire if you want. It is much better to continue working because you want to, rather than because you have to.
Myth 5 – Low risk investments are a must during retirement
I have to confess, this is the one I hate the most! The one that makes me scream NO, NO, NO, NO, NO. When retirement hits, NZ Super means you’re on a fixed income. The reality is that with people on average living longer, your retirement fund is going to have to last longer as well. The unfortunate fact is that low risk investments with the Bank and Term Deposits just aren’t going to cut it.
Remember, if you retire at age 65 and live till you’re 90, that’s 25 years so you will continue to be a long-term investor. That’s why you will likely want/need to remain diversified longer than has been the historical norm.
Why you need to plan with Foresight, not hindsight!
This is where we put in a plug for our services. We think we’re pretty good at what we do and if there’s one thing to take away from this, it’s the importance of seeking out specific investment advice that’s tailored to your specific circumstances and goals. With each person’s needs, earning capacity, and desires completely different, there are no easy answers, no set thresholds to hit that will guarantee success, no perfect, fool-proof formula that you can follow without fail for a comfortable retirement.
While we would love to have a chat with you and ensure we can put you on the right path, ultimately, you’ve got to do the work yourself, and do it as thoroughly as possible, if you want to ensure you have enough savings for retirement.