Explore Robust Retirement Planning for NZ Individuals

Abraham Lincoln once said, “The best way to predict your future is to create it.” At Lyfords, we believe that principle is fundamental to the retirement planning process in NZ. A forward-thinking and proactive attitude today can make a difference when you leave the workforce in the future.

Most New Zealanders retire when they become eligible to receive their NZ superannuation at 65. The unfortunate truth, however, is that many who do so are unprepared for its financial realities. Of those who entered the workforce about 45 years ago, almost 60% will be dependent on Super payments.

Those payments can be less than you expect. For a single individual living independently, the weekly benefit is roughly $463. For a couple that qualifies, each will receive about $356 per week. These amounts translate into a small fraction of the median annual income in New Zealand. Though they are essential supplements, these payments won’t lead to the retirement lifestyle most people imagine.

Creating a retirement plan today is the solution to addressing these concerns. The proper steps taken early enough can lead to a steady, stable income in retirement. The Lyfords team uses decades of experience, an academic approach, and a clear view of the market to help you plan for tomorrow.

Why You Should Think About Planning for Retirement Right Now

A key element of our planning service involves helping our clients understand the realities of retirement. What might seem like a massive amount of savings today can quickly dwindle if you do not think carefully about annual expenses. Your goal should be to sustain your preferred lifestyle and comfort level for the duration of your retirement.

Complicating matters, New Zealanders live longer today, too. Living longer means spending much more time in retirement. Since 1950, life expectancy has increased by almost 18 months every decade. According to some studies, it is possible that people who may live to be 125 or even 130 years old have already been born.

In 2021, the Australian Government published research that showed a striking trend. In the last 40 years, the amount of time men spend in retirement has nearly doubled—the average is now 17 years or more. When determining retirement income, we believe assuming a minimum expectancy of 90 to be the prudent choice.

We understand that everyone has different expectations about retirement and one’s lifestyle. With that in mind, we engage closely with you to understand your expectations and current situation. Working with our clients, we use baselines such as life expectancy to formulate tailored plans for every individual or married couple.

Will You Need the Residential Care Subsidy?

Planning isn’t always about considering investments and income. How you will manage your assets during your retirement is also important. Our skilled advisers also support you when you plan with our team. We can help to explain your eligibility for available subsidies, for example.

The need to enter a rest home one day is an important consideration during retirement planning. Many worry whether they’ll qualify for the government’s subsidy for residential care. This payment, made directly to rest facilities, helps offset the cost of these critical services. However, there are asset limitations on who qualifies.

Additionally, there are strict rules about gifting assets before becoming eligible for the subsidy. This complex area of planning is a crucial focus for our team. Discussing your expectations now allows us to formulate an intelligent plan to produce a better outcome for you and your family.

How Much Retirement Income Should You Have?

So how much do you really need to save to enjoy your retirement comfortably? That depends. What kind of lifestyle do you plan to lead? Do you look forward to travelling in retirement, or do you prefer to live a simpler life closer to family? These personal questions form the basis of any retirement plan.

From there, it is important to make concrete financial considerations. Factoring in what you currently have, what you can save, and investment performance is all-important—considering the potential impact of inflation matters, too. In short, there are many elements to think about, which differ from person to person.

Our retirement calculator for NZ residents can provide you with an excellent starting point. Enter information such as your current age, planned retirement age, income, etc. The tool will then automatically suggest how much you might need to save.

We encourage you to use this calculator as a basis for your understanding. We welcome opportunities to discuss your results. In doing so, we can provide meaningful context and explore strategies to achieve your goals.

Exploring Some Sample Retirement Plan Examples

To demonstrate the importance of planning for retirement, we’ve prepared a few brief scenarios based on common outcomes.

Scenario One

Consider a professional working couple with no mortgage and an after-tax income of $200,000 annually. This couple likes travelling, financially supporting their children, and making lifestyle choices on demand. For the last decade, they’ve earned more than they’ve spent and now have about $1.3 million in savings.

This couple wants a realistic retirement with assets that last as long as their lives and are ready to reduce their annual expenses to $150,000. Assuming an investment return of 4% and inflation of 2% over 28 years of retirement, will $1.3 million be enough? The answer, despite all their hard work, is “no.” The money would run out in about 11 years without significantly slashing expenses.

Scenario Two

Now consider a couple that lives modestly but has health issues that will one day require one or both to live in a rest home. They have an after-tax income of $140,000, a mortgage-free home, and savings of $300,000. They expect this will happen about 10-15 years following retirement.

This couple believes they can live off $60,000 annually with Super funds added. Will their $300,000 be enough? Again, the answer is, unfortunately, no. In this scenario, even though the money would not last, it is possible that the couple could have too many assets to qualify for a care subsidy. Without good planning, they could encounter some challenging decisions.

What does this mean for the couple in scenario 2?

The couple were managing to live cautiously on 35% of their pre-retirement incomes. Their total retirement income was $54,000. They had curbed their life style spending, were unable to replace their car or replace the roof on their house which they had been advised to do but they were getting by. Six years into their retirement their investment income had diminished to $262,000.

That is $22,000 too much to entitle the unwell spouse to the Residential Care Subsidy. They will not be entitled to a rest home subsidy until the $22,000 has been used up.

The well spouse wishes to continue to live in their family home but the NZ Superannuation payment will be reduced to $463 per week. The remaining funds of $220,000 can be invested and would provide an income of $14,500 p.a.

The total household annual income for the well spouse has decreased overnight from $54,000 to $41,000. Very little has changed. Several years earlier the unwell partner had lost interest in shopping or travelling and ate very little. The costs for maintenance and the replacement of cars, white-ware and holidays had become unaffordable. In addition, their property had increased significantly in value so their rates were also becoming unaffordable.

Scenario Three

Finally, let’s consider a couple that sold a family business for $1.5 million and has savings of $1 million. This couple chose to invest their money before retirement using a carefully considered plan. They invest for growth rather than immediate income. Over time, their nest egg grows.

This couple enjoys the lifestyle they desire. They live a comfortable lifestyle within their means, including occasional travel and dining out. They may even be able to afford a live-in nurse one day so that a retirement home is off the table. Because they considered their needs early and planned carefully, they can enjoy a secure and satisfying retirement lifestyle.

Retirement Trend in the US

To qualify for NZ Superannuation you must:

• • Be aged 65
  • Be a NZ Citizen or a Permanent Resident
  • Live in NZ at the time you apply
  • Have lived in NZ for at least ten years since you turned 20.  Five of those years must be since you turned 50.