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Saving goals should be realistic

CAPTION: Budget advisor Grant Howard said retirement saving guidelines are “ideal” but “unrealistic” PHOTO/FILE

By Beckie Wilson

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A couple who want to live a comfortable retirement in provincial New Zealand, such as Wairarapa, will need to have about $400,000 in savings by the time they turn 65 based on the spending of today’s retirees.

But different lifestyles and varying incomes of Wairarapa residents, means this figure is “unrealistic”, says a local budgeting expert.

Westpac Massey University’s Fin-Ed Centre has updated its retirement expenditure research which analyses the spending of over 65 year olds to match inflation, based on Statistics New Zealand household economic data.

It found that while the financial position of retirees had improved in 2016 due to New Zealand Superannuation increases outstripping the cost of living, there was still a need to have extra savings above superannuation for a comfortable retirement.

The gap between what people spent and what they received in NZ Super was $419.01 on average a week for a couple living in provincial New Zealand on a “choices” budget (allow for luxuries).

To bridge that gap, a couple would collectively need to have $402,682 in savings.

Wairarapa Free Budget Advisory Service manager Grant Howard said the retirement saving guidelines are “ideal” but very “unrealistic”.

“It’s too generalized what they’re saying. For a person on a benefit or a low-income wage or a person receiving $48,000 a year, there’s far too many variances to say this is what you should do – it’s lifestyle choices too, do you save that money rather than buying a house.’

“The earlier you save the better you are off, but then the other fact is how can you save for retirement if you have a mortgage and paying off your house?” he said.

“That is and can be looked at as a retirement package — freehold home so you aren’t paying rent.”

For a one-person household, the recommended weekly savings is $486.

“The $400 a week to save on average wage, some people don’t even get that much… because all their outgoings are larger than income.

“You live on $100 a week, rent is $300, and on minimum wage – you can’t save that money.”

The median Wairarapa income is $53,700, according to the 2013 Census.

Masterton’s median income is $48,600, Carterton is $54,800 and South Wairarapa is $57,700.

Wairarapa’s average wage range hasn’t moved much, but “everything else has”, he said.

“It meets the inflation rate is the only thing I would say.”

People would love to do that, but in a society where rates of mental illness and suicide are increasing, reports like this don’t help, he said.

“That’s the side effects of these announcements – people think ‘I can’t save that so I’m going to give up saving anything at all’,” he said.

Saving advice

Saving what you can no matter the amount, and opening a Kiwisaver account are the two tips Mr Howard would give for those planning ahead.

Kiwisaver is the only way younger people are going to buy a home, Mr Howard said.

“The financial advice I would say is start your Kiwisaver as soon as possible, but use it to buy a house.”

A person earning the median weekly wage of $937 in 2016 and making the minimum Kiwisaver contribution of 3 per cent, and receiving the employer contribution of 3 per cent, could expect to save $58,974 if starting at age 50.

Starting at age 40, the expected KiwiSaver savings would be $117,500.

“You have to live for today, not for 40 years down the track – what if you never get there?” he said.

“Put away what you can, don’t worry if the government says you have to put away $300 per person, per household. You can’t do that most of the time at 40 years old [for example]. But if you put $50 a week aside, at least you’ll have something when you retire.”

What retirement do you want?

Savings required for a one-person provincial household by the age of 65 for “no frills” retirement is $30,199, and “choices” retirement $388,073.

Savings required for a two-person provincial household by the age of 65 for “no frills” retirement is $78,144, and “choices” retirement $402,682.

One-person provincial households spending:
No frills (basic)
$420.99 per week including rent $126.27, food $72.73

$785.60 per week including rent $212.53, food $108.94, recreation $91.85

Two-person provincial households spending:
No frills (basic)
$679.50 per week including rent $140.01, food $137.53

$1010.95 per week including rent $172.07, food $173.57, recreation $150.41

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