How many times have we heard that word? You need $1 million in the bank to live comfortably in old age.
This is a scary number for most people, but no wonder. In 2022, the New Zealand Society of Accountants’ Retirement Income Interest Group modeled the distribution of KiwiSaver balances to explore how current 45- to 59-year-olds are saving for retirement.
The average was $164,900 and the median was $124,400. That’s far less than $1 million.
But is $1 million really what you need?
read more:
* 5 steps to crossing the retirement bridge
* Retirement Funding: The Cold and Hard Facts
* Retirement Spending: Why “Managed Drawdown” Is The Future Of KiwiSaver
According to the 2022 New Zealand Retirement Spending Guidelines published annually by Massey University, it depends.
For example, working part-time or delaying retirement are both viable ways to reduce your savings needs. Retiring to a rural center instead of a big city center also makes a big difference.
You can also close the gap by choosing to invest in riskier growth funds rather than balanced funds.
supplied
Liam Robertson of Milford Asset Management.
Liam Robertson, an adviser to Milford Asset Management, warns that switching to a more aggressive fund is not for everyone and will depend on how much risk people are willing to take. This is evidenced by the fact that many people moved their savings into conservative funds after the pandemic, as demonstrated during COVID-19. Watching their balances dwindle.
Over the long term, however, the difference between conservative and growth funds can be significant.
As an example, a 35-year-old man earning $55,000 a year and contributing 3% with his employer could retire with a lump sum of $260,000 in a conservative fund, assuming an average rate of return of 3%. can.
Where you put your money can make a big difference over time.
Investing the same savings in a growth fund over the same period would probably average 7% a year, or $556,000.
Suppose a married couple saves and earns at the same rate and reaches a magical $1 million. Or will it?
This assumes that nothing prevents you from having a family, such as stopping contributions due to illness, redundancy, or other disabilities.
So is less than $1 million good enough?
According to Massey’s report, a single-person household in a metropolitan center would need a one-off payment of $277,000 to retire without frills. You can achieve this by saving $343 a week in a balanced fund after age 50 ($109 from age 25) or by saving $314 a week in a growth fund ($81 at age 25). .
A no-frills weekly budget (basic standard of living) is assessed at a total income of $781 for a single-person household in a large city and $931 for a two-person household.
A choice budget (a more comfortable standard of living with some money added to luxuries and treats) requires a weekly income of $1,217 for a single household and $1,578 for a two-person household.
The good news is that you don’t have to put $1 million in the bank, even for your lifestyle of choice.
$755,000 is enough for a family of two in a big city ($480,000 in a rural center), thanks to NZ supermarkets already providing some income.
But if you’re over 50 and haven’t started saving yet, you need to catch up. For a two-person household in a big city, you’d have to put in $954 or $457 a week to reach that magic number. .
