Saving is not exciting, most of us would agree on that. Sometimes saving towards a tangible goal, like a holiday, can be easier to do. But retirement saving, that’s your future-self problem, isn’t it?
You may be thinking that saving for retirement can wait until next month or next year, when you have more money or less bills to pay. But delaying it will have a huge impact on how much money you end up with. Read on to find out why.
One of the reasons it can be hard to start saving for retirement is that the amount of money needed is just too overwhelming. Research carried out by Massey University in 2017 suggests that a single person living in the city (Auckland, Wellington or Christchurch) needs at least $100,000 in savings by the time they are 65 just to cover the gap between NZ Super and basic living costs. $100,000 will get you a limited diet and no holidays kind of retirement.
For a “choices” lifestyle, a single person will need at least $360,600.
Your saving ally
Fortunately, we all have an ally when it comes to saving: compound interest. Compound interest is essentially earning interest on your interest. For example, if you invest $1,000 in a portfolio that gains 5% per year, then in the first year you'll gain $50, bringing the balance to $1,050. The next year, you'll gain 5% of $1,050, or $52.50 and so on.
That’s why it is so important to start early, to make your money work hard for you. Putting saving off for even a year could mean you miss out on thousands of dollars. Claire Matthews from Massey University says that if you are aiming for a “no thrills” retirement, for which you will need $100,000, starting early will mean smaller regular contributions. “If you start saving at 50, you would need to save $127 per week to achieve that by the time you turn 65. Start saving at 40, and that reduces to $72 per week."
Make the most of KiwiSaver
KiwiSaver is a great retirement saving tool. Over your working life, you will be saving 6% of your salary (3% contributed by you and 3% from your employer) without even thinking about it. By contributing 6% of a $50,000 salary – or $3,000 a year- for 30 years, you could have around $150,000 tucked away (depending on what fund you are in and the return you get). By being in the right fund to match your risk profile and making sure you get your Member Tax Credit every year, you will get even more.
It can be daunting to think about a big saving goal like this, but don’t stick your head in the sand! If you start planning for it now you will get to enjoy the lifestyle you want when you retire. Isn’t that what you worked so hard for?