Saving for retirement

Working out how much you’ll need and where it’s going to come from.

Most people spend about a quarter of their life in retirement. While the day-to-day expenses might be less during your later years, it’s unlikely that you’ll be still earning income from wages or salary. It can make a big difference to your quality of life if you have income-generating investments in place.

Working out how much you’ll need

Put simply, you’ll need to fund the difference between your expenses and the payments you get from New Zealand Superannuation. Let’s start with your expenses.

Expenses

Begin by preparing a retirement budget. If you already have a budget for your current living expenses, you could use that and simply change the information to suit retirement. Our budget worksheet can help. If you want to do this online so it’s easier to add up all the rows, you’ll find easy-to-use personal budget worksheets on websites like sorted.org.nz.

New Zealand Superannuation

Once you’ve worked out all your expenses, the next step is to find out how much you’ll receive in New Zealand Superannuation payments. It’s currently about $15,000 a year after tax if you’re single and $24,000 a year for a couple. 

However, the exact amount will depend on your tax rate and personal circumstances. By visiting ird.govt.nz, you can read more about tax on retirement income. Visit workandincome.govt.nz for information about New Zealand Superannuation, including a table of current rates.

Once you have an idea of your New Zealand Superannuation payments, you’ll be able to compare them with your living expenses. The difference between the two is the extra amount you’ll need to find each year. 

Working out where the money will come from

With a clear idea of the difference between your expenses and your New Zealand Superannuation, you could now be wondering where the balance is going come from if you are to enjoy the retirement you have in mind. Here are a few possibilities.

Saving and investing to create a lump sum for retirement

As well as normal saving and investment strategies, there are schemes specifically designed with retirement in mind. With any saving or investment decision, you should find out as much as you can about it before deciding whether it’s the best option for you. Websites like: sorted.org.nz and kiwisaver.govt.nz can help if you’re interested in a workplace scheme, KiwiSaver, or a private scheme. 

You could also talk to your employer and you should definitely talk to a professional investment adviser before making any decisions.

Putting your retirement money to work

As you approach retirement, it’s time to think about how the lump sum you’ve built up is going to last and how it’s going to help replace your current wage or salary. Investing is one way you could make the money work hard for you in retirement. The idea is to leave untouched the amount you have invested and withdraw some or all of your investment interest each month as an income.

Selling a business

If you own a business, you could sell it and invest the money. Agreeing to stay on for a while to help the new owner get started, even on a part-time basis, can increase the sale price and give you a regular retirement income for a while.

Down-sizing your home and investing the extra cash

If you’ve paid off all or most of your mortgage, you can use the equity tied up in your home to generate an income. If you sell up and move to a smaller home, with a spare room for the grandchildren to stay of course, you could invest the cash you free up and create an income.

Home equity release

This is sometimes called a reverse mortgage or a lifetime mortgage. If you’ve paid off the mortgage on your house, equity release allows you to cash up some of the value of your home without actually selling it. 

It’s a relatively new concept in New Zealand, so here’s how it works. You take out a loan against your home but you don’t make payments until the end of the loan period, which is usually when you sell your home or move out. As with any home loan, interest and fees are charged, but in this case they’re added to the balance you owe. 

This means your loan balance can increase quite quickly, however there’s a possibility that the increase will be offset by the growing value of your property.

Part-time work

A good number of retired people enjoy part-time work. It can be a chance to keep using the valuable skills you built up over years in the workforce, or an opportunity to enjoy working in a completely different industry or role. 

Many employers recognise that older workers are loyal, reliable, committed and have more experience. Receiving other income doesn’t affect your New Zealand Superannuation unless you have chosen the option to include your spouse or partner in your Super payments. (Some people choose this income-dependent option in order to receive more than the single person’s payment when their spouse or partner doesn’t qualify for New Zealand Superannuation. 

If New Zealand Superannuation is no longer your main (biggest) source of income, it could be taxed at the ‘S’ (secondary income) rate rather than the ‘M’ (main income) rate. For more information on tax rates and New Zealand Superannuation, visit ird.govt.nz and workandincome.govt.nz.