Why Weekly Savings Matter: The Exact Amounts You Need for a Comfortable Retirement

Retirement
  • New Zealand’s Updated Retirement Spending Guidelines and the Path to Financial Security

Saving for retirement is a financial goal that often feels daunting, but with clear planning and smart investment choices, it’s achievable. This week, Massey University released updated retirement spending guidelines that provide valuable insight into the amount New Zealanders need for both “no-frills” and “choices” lifestyles in metropolitan and provincial areas.

The report sheds light on how much retirees need to maintain different lifestyles and offers a roadmap for those looking to secure their financial future. Below, we break down the numbers and explore practical strategies for achieving a retirement savings target of $500,000 — along with other possible savings goals.

What the Massey University Guidelines Reveal

According to the report, here’s what retirees need to save for different retirement lifestyles:

  • One-person household (City, Choices lifestyle): $271,000
  • One-person household (Provincial, Choices lifestyle): $252,000
  • Two-person household (City, Choices lifestyle): $571,000 per person
  • Two-person household (Provincial, Choices lifestyle): $223,000 per person

These figures serve as benchmarks for retirement savings goals and highlight the significant role that geographic location plays in retirement costs.

Achieving $500,000: A Time-Based Approach

If $500,000 is your retirement savings target, the amount you need to set aside each week depends largely on how much time you have left before retirement and the return on your investments.

40 Years to Save $500,000

If you’re 25 and aiming to retire at 65, time is your greatest ally.

  • 5% Return: You’ll need to save $142 a week.
  • 8% Return: You only need to save $70 a week.

If you earn $60,000 annually, contributing around 8% to a balanced KiwiSaver fund with a 3% employer match would likely get you close to your goal, assuming conservative returns. Opting for a growth fund with a 6% contribution could also help you reach the target.

Higher earners have even more flexibility. Someone earning $100,000 could contribute just 5% to a balanced fund and still hit the target.

30 Years to Save $500,000

If you’re 35 and just getting serious about saving, the numbers change:

  • 5% Return: $218 a week.
  • 8% Return: $132 a week.

Earning $80,000 and starting with a zero balance in your KiwiSaver account? You’d need to contribute 10% plus your employer’s 3% to hit the mark.

20 Years to Save $500,000

The shorter the time frame, the higher the weekly savings required.

  • 5% Return: $374 a week.

This is a substantial commitment but possible for those in higher income brackets or with additional investment avenues.

10 Years to Save $500,000

If you’re starting at age 55, aggressive saving becomes necessary.

  • 5% Return: $850 a week.

This scenario underscores the importance of starting early. Saving $850 a week is unrealistic for many, highlighting the value of time and compound interest.

Choosing the Right KiwiSaver Fund

Kirstien Taylor, a KiwiSaver adviser at Generate, emphasizes that fund choice is crucial for maximizing retirement savings.

“Being in an aggressive fund instead of a balanced fund can make a huge difference,” she says.

While government guidelines assume balanced funds return 3.5% a year and aggressive funds return 5.5%, actual performance has often exceeded these expectations. Morningstar data shows balanced funds have returned 6.7% annually over the past decade, while aggressive funds have averaged 9.1%.

By choosing a growth fund over a balanced one, savers may need to contribute less each week while still achieving the same results.

If Your Goal Is $250,000 Instead

Not everyone needs or wants to save $500,000. Here’s a breakdown of what it takes to hit a lower target.

40 Years to Save $250,000

  • 5% Return: $71 a week.
  • 8% Return: $35 a week.

For someone earning $60,000 and contributing 3% of their income, plus a 3% employer match, $250,000 is a realistic target over 40 years.

30 Years to Save $250,000

  • 5% Return: $109 a week.

An earner bringing in $80,000 and contributing 3% plus their employer’s 3% would come close to this goal.

20 Years to Save $250,000

  • 5% Return: $187 a week.
  • 8% Return: $136 a week.

Someone starting KiwiSaver contributions at age 45, earning $100,000, could achieve this with an 8% personal contribution and 3% employer match.

10 Years to Save $250,000

  • 5% Return: $425 a week.

At $120,000 a year, contributing 10% plus 3% from your employer would get you close to $190,000 over a decade in a balanced fund.

Why Fund Choice Matters: Insights from Generate Advisers

Stephanie Whittaker, another Generate adviser, points out the substantial difference fund choice can make.

“Someone saving $51 a week between 25 and 65 in a balanced fund can expect to save $183,000,” she says. “But if they are in a growth fund, it would drop to $38 per week, or $27,040 less that needs to be saved over 40 years.”

For two-person households in provincial areas aiming for a choices lifestyle requiring $446,000, a balanced fund would require saving $135 per week from age 25. But switching to a growth fund reduces that to $104 per week — a difference of $64,480 over four decades.

Smart Tips for Retirement Savings Success

  • Start Early: The earlier you begin, the more compound interest works in your favor.
  • Choose the Right Fund: Aggressive funds often yield higher returns over long periods.
  • Maximize Employer Contributions: Take full advantage of KiwiSaver employer matching.
  • Revisit Your Strategy Regularly: Market conditions and life circumstances change, so adjust your contributions and investment strategy accordingly.
  • Get Professional Advice: Consulting with a financial adviser can help optimize your savings plan.

Saving for retirement doesn’t have to be overwhelming. With clear goals, disciplined contributions, and smart investment choices, reaching a target like $500,000 is achievable. Massey University’s updated guidelines provide helpful benchmarks, but ultimately, the right plan is the one tailored to your financial situation and goals.

As Whittaker aptly notes, “These figures should give [Kiwis] comfort that they don’t necessarily need to put in more money — they just need their money to work smarter and harder for them.”

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