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12 Jan 2022

Thinking about the future can feel overwhelming. Particularly as the cost of living continues to increase,  combined with the lack of affordable housing in New Zealand, retirement can sometimes feel a little out of reach. It can be tempting to think about retirement as something 10, 20, 40 years away, but this is a long term game - starting early is the advantage. Here is everything you need to know about when to start saving for retirement.

What should you know when thinking about your retirement?

Everyones retirement plans will look different. Some people might wish to fill their retirement years with travel and new experiences, while others dream about spending as much time with family as possible. It’s a good idea to work out what kind of lifestyle you want to have in retirement. This will ultimately help you figure out just how much money you will need to tuck away. Here are some of the key things you should consider when thinking about retirement:

How much will retirement cost me? 

As societies have evolved, so has the way you live life. New Zealanders are living longer, which means there will be a longer period of retirement. It’s essential to evaluate how you will cover your living costs if you retire. When you stop working, your income reduces, and although you may be entitled to the state pension at age 65, this might not cover all of your outgoings. So, you will need to determine how you will cover the costs of your accommodation and bills. You might have an expectation of the kind of lifestyle you want to have in your years as a retiree. It’s always better to overestimate the finances you’ll need so you can live comfortably. If you’re feeling uncertain about where to start, talking to a financial adviser might be an option for you.

When can I retire?

Many of you will be asking yourself - when exactly can I retire? Although this depends on your individual financial situation, the traditional age for retirement in New Zealand is 65. This is the age that you will be eligible for superannuation. However, as the cost of living continues to rise, it can be challenging to understand what age you can consider retirement, particularly when the New Zealand superannuation is not relative to the high cost of living. It’s essential to do your research on this and consult with an online tool to gain some insights on retirement in relation to your current salary.

What if something goes wrong?

You can plan your future to the letter, but sometimes the unexpected happens, life throws a curveball, and all those plans go out the window. When thinking about retirement and the possible hiccups in reaching it, you can do a few things to be as prepared as possible. Thinking ahead can help protect you from the unknowns of tomorrow.

  • Assessing the risks Making a list of circumstances that might throw you off track can give you a better understanding of where you have a greater risk. These could be an unexpected redundancy, a family illness or even a global pandemic. Ensuring you cover all the bases will put you in good stead, even if the unexpected happens.

  • Overcoming the risks - Research risk reduction solutions such as rainy day funds to ensure you are protected from any worst-case scenarios that might pop up.

  • Income protection insurance - Consider taking out an insurance policy that will protect you and your family in the event of a redundancy.

The best time to start saving for retirement?

  • The earlier your start, the better off you’ll be.

Retirement is a long game; the longer you contribute to your retirement fund, the bigger your retirement pot will be. Anyone of retirement age will tell you how quickly the years go by, so the sooner to start on that nest egg, the better. If you’re unsure when you should start planning for your future, consider the six key life events that might make you rethink your budget.

  • Thinking about retirement early puts you ahead.

It’s easy to get caught up in other expenses such as student loans, your first house savings or your next adventure, but keeping your retirement front of mind will ensure that your retirement pot continues to grow. Thinking about your retirement now means less stress for you at retirement age. Not only are you investing in your future financial security but also your future wellbeing.

  • Consistency is key.

Thinking about your retirement as more of a long-term investment instead of income you won’t see in your account is a great perspective to take. Those consistent contributions to your KiwiSaver all add up - As they say, ‘watch the cents, and the dollars will follow.’ While it can be tempting to take multiple contribution holidays from Kiwisaver, consistent contributions will be in your favour over a long period.  Taking this long term view on retirement will ultimately pay off. You will see the benefits just not for a while.

3 tips for preparing for retirement

1.    Understand how retirement pensions and schemes work

Knowing how much you should save for retirement can be daunting. Some schemes are set up expressly to help New Zealanders save for retirements, such as Kiwisaver and other pension plans. Familiarise yourself with the main schemes available in New Zealand.

  • Kiwisaver is a government initiative set up to help Kiwis save for retirement. This is a voluntary programme that can be set up to take money directly from your paycheck, or you can opt to make payment to your scheme provider.

  • New Zealand Superannuation is a fortnightly payment from the government for those aged 65 and over. The rates of superannuation depend on your personal circumstances and can differ from person to person.

2.    How do I start? 

Review your current financial situation and where you think you might be in 5, 10, 20 years. You can use one of the online tools available to help. If you’d prefer to talk to an expert, an independent financial advisor could be a great option for you and make recommendations in your best interest. Once you have assessed any potential curveballs and set up your payment scheme, you can enjoy peace of mind knowing you have a plan in place for your future.

3.    Do your research

There’s a lot of different pension schemes/Kiwisaver funds out there, so you might be asking - how do I know what one is right for me? If you’re unsure of the options available. It’s important to do your research to find the best option for you.

Review your Kiwisaver fund and get to know if you are making the best return on investment and how you could try to maximise this. Consider the alternative funds available to find the right investment to meet your needs. If you can afford to increase your Kiwisaver contribution to reach your long term financial goals, you can.

The default for many KiwiSaver funds is set as low-risk investment portfolios. This might not be the best option for you at a young age and possibly more appropriate for when nearing retirement age.

Information is everything; if you’re unsure of something, don’t be afraid to ask for help or more information. The more you learn about retirement funds, the risks and the planning, the better placed you will be to ace retirement saving.

Are you ready to start saving for retirement?

Knowing where to begin when it comes to saving for your retirement can be tough, but we’re here to help you in your journey. Whether that’s getting the right level of insurance cover to protect you from unexpected curveballs or when to review your insurance, Cigna is here to make things that little bit easier. Start that long term investment in your future today by making a retirement savings plan.