Don’t panic about retirement, says financial adviser Lisa Dudson. But pull your head out of the sand and don’t muck around, either.

“Time is your biggest friend when it comes to saving for retirement,” she says. “The shorter the time, the harder you have to work to save.

“Young people find it hard to even think about retirement. But don’t think it’s too far away, because you can start with just a tiny amount, and compounding interest will help you do the rest,” says Dudson. With compounding interest, you add the interest you make on to your savings to the lump sum, and then get interest on the new total. This simple step can help turbo-charge your savings.

Late to the party?

But what if you’ve started saving late? You might be in a sprint to the finish line. It’s a good idea to see a financial adviser while you’re still earning money. They can help you put a plan in place to help reach your goal. And you need a plan. That’s because some of us might be in retirement for 30 years. The Sorted Retirement Planner uses figures from Statistics NZ to recommend women plan to age 94 and men until 91, although it says 20 per cent of us will live even longer than that.

A ballpark figure

Any financial adviser will tell you that the cost of retirement depends on the lifestyle you want, whether you’ll still have a mortgage, your living expenses and how long you expect to live. Newspaper financial columnist and author Mary Holm says she gets many letters from retirees saying they live very well on NZ Super alone. They live in a mortgage-free home in a provincial town, supplementing food with a vegetable garden, and spending carefully. At the other end of the scale, financial adviser Lisa Dudson says many of her clients are on two six-figure incomes and want to live in the same style after 65. They’re looking at savings of NZ$2 million and upwards to live that way.

Three stages

The Commission for Financial Capability says there are three stages to retirement.

Discovery: Ages 65 to 74 $$$ These are the expensive ‘doing years’, says the CFFC. It’s about ticking items off your bucket list, travelling, hobbies, and interests. You might work still, or just part-time. Many retirees are busier now than they were before they retired. You might replace the car and some appliances, or renovate the house. The fun things in life can be quite expensive too, so make sure you don’t blow all your savings in the first 10 years.

Endeavour: 75 to 84 $ Now your body might be telling you to slow down and international travel might lose its appeal. This stage is about the simple things in life. You might downsize the house, and life is more routine. The good news is that these years are a little cheaper than the first phase.

Reflection: 85 and over $$ In the third stage, you’re not as busy, or as active. You might find your choices limited by health or money, and you’ll probably be out and about less. You might have more visits to the doctor but otherwise, your cost of living drops dramatically. If you’re in a rest home, these costs can absorb your savings, so these years can cost more than the previous stage.

What will I spend?

To plan for retirement, you need to know how much it’s going to cost to live. That’s why Claire Matthews of Massey University worked with the Financial Services Council on a study to work out what Kiwis spend in retirement. Every year, the Retirement Expenditure Guidelines provide information about actual levels of spending by Kiwis who’ve already retired.

Matthews divides retirement into two standards of living: No Frills and Choices. No Frills is a basic standard of living that includes few, if any, luxuries. Choices standards offer a more comfortable standard of living, which includes some luxuries or treats, like holidays, meals out, more expensive items at the supermarket, and leisure activities.

Sadly, the study showed that very few Kiwis can get by satisfactorily on NZ Super alone, even for a No Frills retirement. You’ll need a mortgage-free home, and to have some savings to fill the gap between NZ Super and your living costs. “There’s quite a marked divide between what you need for a No Frills and a Choices lifestyle,” says Matthews. “For the No Frills, it’s basically a gap of less than NZ$100,000,” says Matthews.

“For the Choices, it’s up to NZ$800,000, so it’s anywhere between NZ$100,000 and NZ$800,000, depending on whether you live in a provincial or metropolitan area.”

What you get

NZ Super is a payment of NZ$423.83 a week if you’re single, or NZ$652.04 for a two-person household. That’s taxed at the M rate, so you may pay more in tax if you earn more.

View the Massey University New Zealand Retirement Expenditure Guidelines.

Published 25 November 2019