We all want to retire in comfort! Many Kiwis will be hoping to do so with the support of the NZ Superannuation (NZ Super). However, it seems that NZ Super already cannot cover the costs of retirement (see here) and now there’s even discussion of changing the criteria of NZ Super, which could impact thousands of Kiwis.
So what exactly is going on and how can Kiwis prepare for retirement? Well that’s what we’ll dive into today. Read on!
Raising the age of eligibility for NZ Super
With the global pandemic forcing many people into retirement, the New Zealand government has been evaluating the role that NZ Super plays in people's lives. Recently, there has been discussion about raising the age of eligibility for NZ Super but this would be a mistake. Retired New Zealanders make valuable contributions to their communities - with NZ Super providing the means to give back through unpaid work, voluntary work and caregiving.
Today, 40% of people aged 65 and over have virtually no other income besides NZ Super and another 20% only have that, and a little more. Even without other forms of income, these retired New Zealanders are still making valuable contributions to their communities. In fact, research shows that retirees are more likely to volunteer than those who are still working. They also provide vital support to family members - acting as babysitters and caregivers.
NZ Super is an important part of our social safety net, and raising the age of eligibility would only disadvantage those who need it the most. Women, Māori and Pacific peoples would be disproportionately affected by any increase in the age of eligibility, as they tend to live longer than other groups. Raising the age of eligibility would also put an undue financial strain on families who are already struggling to make ends meet.
The evidence is clear - raising the age of eligibility for NZ Super would be a mistake. Retired New Zealanders make vital contributions to their communities, and they should not be penalised for doing so. NZ Super is an important part of our social safety net, and we must do everything we can to protect it.
However, it may become even harder to access, whether we like it or not. So, Kiwis have to prepare for retirement without relying on NZ Super.
How to plan for retirement without NZ Super
Since retirees cannot rely fully on NZ Super, it’s important they plan for retirement thoroughly.
Clive Fernandes (Director of KiwiSaver Advisors National Capital) said, “Retirement planning is a process that requires taking a close look at your current financial situation, projecting your future needs and income sources, and making decisions accordingly. It's important to start planning for retirement as early as possible, but it's never too late to get started.”
Here are three common retirement scenarios and some tips on how to plan for each one.
Retirement Scenario 1: A House Owned Outright with Its Occupants Expecting a Long and Often Healthy Retirement
For this scenario, it's important to have a plan for maintaining the home and keeping up with repairs and renovations. Home equity lines of credit or reverse mortgages can provide retirees with extra cash when needed, but it's important to be aware of the fees and interest rates associated with these products. It's also a good idea to have long-term care insurance in case an unexpected health event should occur.
Retirement Scenario 2: Retirees Being Asset-Rich and Cash-Poor - Relying on NZ Super
For this scenario, retirees should focus on increasing their income sources in retirement. This may include working part-time, downsizing to a smaller home, or renting out a portion of their home. Additionally, retirees in this situation should make sure they are taking advantage of all available tax breaks, such as the age-related tax credit.
Retirement Scenario 3: Retirees Paying Mortgage and Rent in Retirement
For this scenario, it's important to have a plan for how the mortgage or rent will be paid in retirement. This may include working part-time, downsizing to a smaller home, or renting out a portion of their home. Additionally, retirees in this situation should make sure they are taking advantage of all available tax breaks, such as the age-related tax credit. Additionally, some lenders offer "lifetime mortgages" which allow seniors to borrow against the equity in their home without having to make monthly payments.
In each of the above scenarios, ensuring your KiwiSaver account is set up correctly for your financial situation is paramount and may result in 1000’s of dollars more in your retirement assets.
No matter what your retirement looks like, there are steps you can take now to ensure you're prepared. The most important thing is to start planning early and to review your plans regularly.
Use National Capital!
Everybody’s retirement savings goals will differ according to each person’s financial situation. Those unsure how much they will need for retirement to cover their housing and living costs should consult a financial advisor. Lucky for you, we know exactly who you should talk to!
Our friends over at National Capital are independent financial advisors who will give you great advice on your KiwiSaver! They’ll help relieve your financial worries, allow you to make informed choices, and give you confidence in your investments.
To start, use their FREE online tool Kiwisaver HealthCheck! It collects some of your information to provide you with tailored recommendations on which Kiwisaver fund is best for your needs!
Head to Money Compare!
Since you’re already looking into your retirement funds, why not check out whether you can get better deals on all your other financial plans too.
The best way to do this is by heading to Money Compare!
At Money Compare, you can compare all your financial plans! This includes your home loan, car insurance, personal loans and much more.
You’ll save heaps of money and find the perfect plan that meets your needs!
All you have to do is: Jump on our website, enter in a few details, select filters that match your preferences and hit enter! Then you’ll see all the plans available to you. You can compare them all side-by-side on one page.
It couldn’t be simpler!
For more help on your KiwiSaver, check this out!
*This is an educational guide only. It is in no means specific financial advice. Please consult a professional financial advisor (like the ones at National Capital) for any specific financial advice you may require.*
