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Financial planning for your retirement
It’s never too soon to have a plan in place for your retirement.
Retirement may seem a long way off if you’re in your 20s, 30s or 40s. However, it’s never too early to begin retirement planning. The sooner you can begin, the more likely you are to have a comfortable retirement.
Leaving financial planning until a few years before you retire could cause you stress. You might find that you don’t have enough money for your retirement, which means you will have to rely on government assistance.
But don’t despair. In this guide, we’ll give you some things to consider in your retirement planning.
Why should I plan for my retirement?
If you’re a long way off retirement, you might be wondering why it’s important to plan for your golden years. After all, government superannuation is available in New Zealand – why not rely on that?
- You’ll have a more comfortable retirement. If you picture retirement as a time to relax in comfort, with no debt and enough money to travel, play golf, spend time with friends and enjoy your grandchildren, you’ll need to save. Superannuation is only designed to cover your most basic needs.
- You can choose whether to continue working or not. You may intend to work well past the standard retirement age of 65. If you have plenty of money saved for retirement, you can choose when you want to retire rather than being forced to continue working for financial reasons.
- You’re more likely to become ill and have limited mobility. The older you are, the greater your risk of developing an illness or being injured. Good health care can cost a lot of money. You may not be able to continue working if you’re sick or injured, even if you want to.
How to plan for your retirement
We get it. Thinking about how much money you’ll need for your retirement is painful – you’d rather put it in the too-hard basket. Yet retirement planning is vital if you want to retire in a solid financial situation.
Some of the things you’ll need to consider when you make a retirement plan include:
- How much money you’ll need to live on
- Where that money will come from – savings, income, government assistance, or a combination
- Where you’ll live
- How to protect your assets
Sorted has a great budgeting tool to work out how much money you’ll need once you retire. This is a good place to start. Once you’ve worked out the cost of retiring, you can start thinking about ways to start saving that amount.
Here are some ways to begin planning for your retirement.
Pay off debt before you retire
One of the first things you’ll want to consider when planning for your retirement is paying off debt. This means you don’t owe any money, thus freeing up your income for other things.
For most of us, having a mortgage – the debt we owe when we buy a house – is the biggest debt we’ll have. You’ll want to make sure your mortgage is paid off before you retire.
Other debts include:
- Student loans
- Loans from private companies
- Car repayments
- Hire purchases
- Outstanding fines
If you’re in a lot of debt you may need some help. You can use MoneyTalks to find free advice on budgeting to pay off your debts.
Decide how you’ll support yourself once you retire
There are a number of ways you can keep yourself financially afloat during retirement. Here are some of the options. Remember that you’re not limited to just one way of saving for your retirement – you can use a combination of these options.
Keep up the KiwiSaver
KiwiSaver is not compulsory. However, it is worth signing up to the scheme as it’s an easy way to save money for your retirement. It works like this:
- Choose to contribute 3%, 4%, 6%, 8% or 10% of your wages or salary before tax to your KiwiSaver account.
- Your employer also contributes to your KiwiSaver. They must contribute a minimum of 3% of your salary or wages before tax.
- If you make the required minimum annual contribution the government will also make a contribution to your KiwiSaver account of up to $521.
- What happens to the money? Your savings are invested by the KiwiSaver provider of your choice. If you don’t choose a provider, IRD will assign you to one of nine default providers.
You can’t access your KiwiSaver until you turn 65. There are exceptions to this rule, however. The main ones are using KiwiSaver to buy your first house, and in case of significant financial hardship.
Consider other investments
Investing your money is another way to plan for your retirement that you might like to consider. Investments include but are not limited to:
- Private investment schemes
- Share trading
- Term deposits
- Employer retirement savings schemes (once common, these are rare nowadays in New Zealand)
Some of these options come with more risk than others. For detailed advice you’ll need to contact your financial services provider.
The first government superannuation scheme came into existence in New Zealand in 1898. It was expanded in 1938, giving a universal retirement payment to everyone over the age of 60.
Currently every New Zealander, regardless of their financial situation, is eligible for superannuation at the age of 65. As mentioned above, the superannuation payment is not designed to allow a luxurious lifestyle, but to cover basic costs such as rent/mortgage, food and utilities.
As of December 2020, the standard rates for the pension are:
- Single and living alone, or with a dependent child: $847.66 per fortnight after tax
- Couple, both eligible for superannuation: $652.04 each per fortnight after tax
These rates can vary depending on your individual situation. Check out Work and Income’s full guide to superannuation payments.
Changes to the superannuation scheme – including raising the age of eligibility and testing the payment against income – have been discussed for some time. While the current scheme remains as it is, New Zealand’s population is ageing, meaning it’s likely changes will be made.
If you are currently in your 50s, you will almost certainly receive full superannuation when you retire. But if you are in your 40s or younger, there’s no guarantee superannuation as we know it will be available.
Other government assistance
If you are in a very serious financial situation you may be eligible for other government benefits after you retire. These include the disability allowance if you have ongoing medical costs, and the accommodation supplement.
Other assistance may be available, for example, in emergency situations.
As with superannuation, it’s best not to rely on government assistance as a source of income.
For more information about extra financial help after you retire, visit the Ministry of Social Development’s website.
The bottom line
Planning is essential if you want to retire comfortably. Work out how much money you’ll need for your retirement, and make a plan from there.
If you have a job or you’re self-employed, sign up to the KiwiSaver scheme and begin contributing. Consider some of the other options for saving that we’ve laid out in this guide. Your future self will thank you for it.
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