By Mary Holm*
Analysis - People often wonder whether they're saving enough for retirement. They want an easy formula along the lines of: "You should have $X at 30, $Y at 40 and $Z at 50".
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This comes as new research has found most Kiwi retirees are reduced to living off NZ Super alone after just 10 years of retirement and have around $200 less a week to live on than the amount they believe would make their lives comfortable.
The trouble is that $X, $Y and $Z will be very different for different people. It depends on many things, including how your savings are invested, how much your pay will increase over your lifetime, and - of major importance - how much you want to spend in retirement.
Let's start with that last question. Assuming you're saving in KiwiSaver, go to the KiwiSaver Savings Calculator on the Sorted website to get a rough estimate of your balance at 65, and how much that would give you to spend each week in retirement.
For example, a typical 30-year-old on $40,000 might get a retirement balance of about $237,000 and be able to spend $242 a week, on top of NZ Super, from age 65 to 92.
Note that the numbers are adjusted for inflation. So the $242 will buy what $242 buys today. You can turn off the inflation adjustment if you prefer.
To that you can add NZ Super. If you're not earning other income, Super currently gives you about $390 after tax a week if you're single and living alone, and about $600 a week for a couple.
Those amounts are increased each year to match wage rises. A future government could cut back on those increases, but probably not hugely.
What if your total for KiwiSaver and Super isn't high enough for your liking? The calculator lets you see the effect of adding extra payments into KiwiSaver or increasing your contributions from 3 percent to 4 or 8 percent of your pay. If you make either of those changes, you can see how much more you'll have to spend later on.
The calculator assumes you've invested in a balanced KiwiSaver fund, which is at the middle risk level. If you're in a lower-risk fund, your savings will probably grow more slowly and you'll have less to spend in retirement. In a higher-risk fund, you'll probably have more to spend - but a more up and down ride on the way.
Not sure of the riskiness of your fund, or whether you're in the best fund for you? Another tool on the Sorted website, the KiwiSaver Fund Finder, will tell you. If you don't know the name of your fund, ring Inland Revenue on 0800 KIWISAVER (0800 549 472). You'll need to have your IRD number with you.
The KiwiSaver Savings Calculator also makes other assumptions. For example, if you're employed it assumes your pay will rise by 3.5 per cent a year. That might seem too high. Pay rises these days are rarely that big. But in the course of a lifetime, most people get a big pay rise every now and then when they move jobs, and that pushes up your average annual rise.
Of course, if you have other non-KiwiSaver savings you should take those into account too. And many people have assets they can sell in retirement. You might, for example, move to a more modest home or to an area where house prices are much lower, and free up several hundred thousand dollars.
Note, too, that once people get to their mid-80s or 90ish, many say that they spend much less and NZ Super is enough. Nevertheless, obviously the more savings you have the more comfortable your retirement will be. For a more comprehensive look at your situation, use the Retirement Planner on Sorted.
*Mary Holm is a columnist, author and educator. She discusses personal finance issues with Jesse Mulligan on RNZ National every second Thursday.