Retirement Planning at Every Age: What You Need to Know
Planning for retirement is a lifelong journey that evolves as you progress through different stages of life. No matter your age, it’s never too early or too late to start thinking about your financial future. This guide will walk you through the key considerations and strategies for retirement planning at every age, helping you build a secure and comfortable future.
In Your 20s: Laying the Foundation
Your 20s are the perfect time to start building good financial habits that will serve you well throughout your life. While retirement may seem like a distant concept, the power of compound interest means that even small contributions now can grow significantly over time.
Key Actions:
- Start saving early: Begin contributing to a KiwiSaver account if you haven’t already. Even small regular contributions can make a big difference over time.
- Build financial literacy: Educate yourself about basic investment concepts and personal finance. Resources like Sorted.org.nz offer free, unbiased financial information and tools.
- Develop a budget: Learn to live within your means and avoid accumulating high-interest debt.
- Consider higher-risk investments: With time on your side, you can afford to take on more risk in your investment portfolio for potentially higher returns.
In Your 30s: Balancing Priorities
Your 30s often bring increased financial responsibilities, such as home ownership and starting a family. While these can compete with retirement savings, it’s crucial to keep your long-term goals in focus.
Key Actions:
- Increase retirement contributions: As your income grows, aim to increase your KiwiSaver contributions or consider additional investment options.
- Review your KiwiSaver fund: Ensure your KiwiSaver is invested in a fund that aligns with your risk tolerance and retirement timeline.
- Start an emergency fund: Aim to save 3-6 months of living expenses to avoid dipping into retirement savings for unexpected costs.
- Consider income protection insurance: Protect your ability to earn and save for retirement by insuring against illness or disability.
In Your 40s: Ramping Up Savings
Your 40s are often peak earning years, making it an ideal time to accelerate your retirement savings. It’s also a good time to get more specific about your retirement goals.
Key Actions:
- Maximise retirement contributions: Take full advantage of any employer-matched KiwiSaver contributions and consider additional retirement savings vehicles.
- Pay down debt: Aim to enter retirement debt-free by focusing on paying off mortgages and other loans.
- Seek professional advice: Consider consulting a financial adviser to help refine your retirement strategy and ensure you’re on track.
- Start estate planning: Begin thinking about how you want to transfer your wealth and assets to the next generation.
In Your 50s: Fine-Tuning Your Plan
As retirement draws closer, it’s time to get more specific about your retirement lifestyle and the savings required to support it.
Key Actions:
- Estimate retirement expenses: Use tools like the Sorted retirement calculator to get a clearer picture of how much you’ll need in retirement.
- Consider downsizing: If your home is larger than you need, selling and moving to a smaller property could free up capital for retirement.
- Review your investment strategy: As you near retirement, you may want to shift to a more conservative investment approach to protect your savings.
- Explore catch-up strategies: If you’re behind on savings, look for ways to boost your contributions in these final working years.
In Your 60s: Preparing for the Transition
With retirement on the horizon, it’s time to finalise your plans and prepare for the transition from working life to retirement.
Key Actions:
- Understand your entitlements: Familiarise yourself with NZ Super rates and eligibility criteria. As of 2024, a single person living alone receives $992.74 per fortnight after tax.
- Develop a withdrawal strategy: Plan how you’ll draw down your retirement savings to supplement NZ Super and support your lifestyle.
- Review your insurance needs: As you enter retirement, your insurance needs may change. Review and adjust your policies accordingly.
- Consider part-time work: If your savings fall short, consider phasing into retirement with part-time work to supplement your income.
In Retirement: Managing Your Nest Egg
Once you’ve entered retirement, the focus shifts from accumulating savings to managing your nest egg to ensure it lasts throughout your retirement years.
Key Actions:
- Regular budget reviews: Regularly review and adjust your budget to ensure your spending aligns with your retirement income.
- Stay invested: While you may shift to more conservative investments, keeping a portion of your savings invested can help combat inflation.
- Plan for healthcare costs: As you age, healthcare costs may increase. Factor this into your financial planning.
- Stay engaged: Consider volunteer work or part-time employment to stay active and potentially supplement your income.
Retirement planning is a lifelong process that requires regular attention and adjustment. By taking appropriate actions at each life stage, you can build a secure financial future that supports the retirement lifestyle you envision. Remember, it’s never too early to start planning, and it’s never too late to make improvements to your retirement strategy. Seek professional advice when needed, stay informed about your options, and remain committed to your long-term financial well-being.