Earlier this morning I read an article in NZ Herald advising that most New Zealanders contribute less than $2000 per year to their KiwiSaver accounts. This made me think about how insufficient this would be to acquire a nest egg for the retirement. According to the article, someone putting in $2000 a year from 25 could expect to end up with about $155,000 in their KiwiSaver account at retirement.
Most of Diamond clients plan to retire on 75% of their current gross income. This equates to a handsome fortune between $1.5m to $2m returning 5% PA Gross. You may think it is ambitious but we know that with great planning and assistance from experts our clients are well on track.
Massey University estimated that a couple would need total income of $1,076 a week to have a “choices” lifestyle in retirement. After receiving a weekly pension of $590, they would need an extra $486 a week if they wanted to be able to afford a few luxuries. The “choices” lifestyles would require a combined nest egg of $486,023, or $241,011 each. Can an average couple afford to save that much before their official retirement age of 65?
Meet our imaginary clients John and Helen, also known as typical Diamond clients . They are 45 years old, have a $300k mortgage left on their home, and earn $120,000 between them. They decided to start contributing towards the Kiwi Saver. They think that they should start off with 3% contributions, which will be matched by the same contribution from their employers and $521 tax credit per person per year. They also decided that since they have 20 years before the retirement they will commit to the most aggressive fund to boost their savings. Let’s fast forward to when Helen and John are 65 years old and check their KiwiSaver statement.
Based on the assumptions above this is their result:
|At age 65:|
|They will have||$197,000||$11,279 / yr|
|They will need||$473,000||$27,023 / yr|
|Gap||$276,000||$15,744 / yr|
|Contributions gap||$172 / week|
In order for this couple to achieve the retirement goal of $473,000 they will need to increase their weekly contributions by $172. This is where it starts to hurt because weekly contributions must be $241 which means 10.8% of her gross income or significant 12% of their after-tax income!! Most people we consult do not save 12% of their income and that is common for most kiwis.
Now what if I told you that the property, we have promoted last week ( Central Hamilton, Brand New, 6.1% Rental Yield, $575,000) will generate you the following results in only 10 years:
Equity in property – $504,000 (assuming IO mortgage and only 6.5% pa growth)
The property will give Helen and John $65 per week (and they can steel keep her KS fund with 3% contribution).