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A Beginner’s Guide to Retirement Planning

Retirement Planning 101: A No-Nonsense Guide for Kiwis

Right, let’s cut to the chase. You’re here because you’ve realised that retirement isn’t just something that happens to other people. Good on ya. Now, let’s roll up our sleeves and get stuck into the nitty-gritty of retirement planning in Aotearoa.

1. NZ Super: The Bedrock of Retirement Income

First things first, let’s talk about NZ Super. As of 2024, if you’re 65 or older and meet the residency requirements, you’re eligible for:

  • $519.43 per week (after tax) for singles living alone
  • $480.30 per week (after tax) for singles sharing
  • $799.12 per week (after tax) for couples (combined)

Sounds decent, yeah? Well, hold your horses. While it’s a good start, it’s hardly enough to fund those trips to Waiheke or keep you in flat whites and fish ‘n’ chips. That’s where the rest of your planning comes in.

2. KiwiSaver: Your DIY Supplement to NZ Super

KiwiSaver is your secret weapon. Here’s how to maximise it:

  • Contribute at least 3% of your salary to get the full employer match
  • Chuck in $1,042.86 annually to get the full $521.43 government contribution
  • Choose your fund type wisely:
  • Conservative: Lower risk, lower returns (good for short-term goals)
  • Balanced: Moderate risk and returns
  • Growth: Higher risk, potentially higher returns (ideal if you’ve got time on your side)

3. The Magic Number: How Much Do You Actually Need?

Here’s where it gets tricky. The general rule of thumb is you’ll need 70-80% of your pre-retirement income to maintain your lifestyle. But let’s break it down:

a) Calculate your expected annual expenses in retirement

b) Subtract your expected NZ Super

c) The difference is what you need to fund from your savings

For example:

  • Annual expenses in retirement: $60,000
  • NZ Super for a couple: $41,554 (as of 2024)
  • Shortfall: $18,446 per year

To generate this extra $18,446 annually, you’d need approximately $461,150 in savings (assuming a 4% withdrawal rate).

4. Investment Strategies: Beyond KiwiSaver

Diversification is key. Consider spreading your investments across:

  • Term deposits: Low risk, but returns barely outpace inflation
  • Bonds: Government and corporate bonds offer steady income
  • Shares: Both NZ and international for growth potential
  • Property: Either directly or through Real Estate Investment Trusts (REITs)
  • Managed funds: Professional management, but watch those fees!

5. Tax Considerations: Keeping More in Your Pocket

  • PIE (Portfolio Investment Entity) funds: Taxed at your Prescribed Investor Rate (PIR), which is often lower than your income tax rate
  • Look into the tax implications of different investment types:
  • Term deposits: Taxed at your marginal rate
  • Shares: Potential for tax-free capital gains, but dividends are taxable
  • Rental property: Income is taxable, but expenses are deductible

6. Risk Management: Protecting Your Nest Egg

  • Emergency fund: Aim for 3-6 months of expenses in easily accessible savings
  • Insurance: Consider income protection, trauma, and health insurance
  • Debt reduction: High-interest debt is a retirement savings killer. Knock it on the head ASAP

7. The Legal Bits: Estate Planning

  • Will: Keep it updated, especially after major life events
  • Enduring Power of Attorney: For financial and health matters
  • Trust: Consider if you have complex family situations or significant assets

8. Retirement Income Strategies

Once you’ve built your nest egg, you need a plan to make it last:

  • The 4% rule: Withdraw 4% of your initial retirement savings each year, adjusted for inflation
  • Buckets strategy: Divide your savings into short-term (cash), medium-term (bonds), and long-term (shares) buckets
  • Annuities: Not common in NZ, but worth investigating for guaranteed income

9. Stay Flexible and Informed

  • Regularly review and rebalance your portfolio
  • Keep an eye on legislative changes (e.g., potential changes to NZ Super age)
  • Consider working with a financial advisor for personalised advice

Remember, retirement planning isn’t a ‘set and forget’ exercise. It’s an ongoing process that requires regular attention and tweaking. But don’t let that put you off – the peace of mind that comes from having a solid plan is worth its weight in gold (or should that be Manuka honey?).

Now, stop reading and start planning! Your future self will thank you for it. And if all this seems overwhelming, no worries. Take it step by step, and don’t be afraid to seek professional advice. After all, you wouldn’t try to fix your own car without the right know-how, would you?

Kia kaha, and here’s to a retirement filled with more holidays than headaches!

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