The latest retirement spending guidelines are out, and they say a city couple needs $1.142 million to retire with ‘choices’. In the regions, the same couple have a ‘choices’ retirement with less than $500,000 in savings.
A ‘choices’ retirement for a couple in the provinces needs a $446,000 lump sum, or $252,000 for one person. But what kind of choices do you get with that retirement? And will those sums get you the kind of retirement you’ve dreamed about?
Spending no More Than $250 on Food and Alcohol
Take a look at the detailed spending for a provincial choices budget: for one person, your weekly food and alcohol budget is about $116. If you’re part of a couple, that increases to $250. You certainly have more choices than a retiree on the ‘no frills’ budget, but those choices will still be limited. If you’re used to eating takeaways weekly and going to restaurants regularly, it’s possible you’ll need to tighten your belt.
To save up for the metro level of choices, one person will need $271,000, or a couple will need a lump sum of $1.142 million. Does that buy you a more lavish lifestyle? For one-person households, your food and liquor budget is a little over $130 a week. For two-person households, it’s a lot higher: around $350 on food and alcohol. But that isn’t a massive budget if you’re high earners who are used to spending $200 or more at high-end restaurants.
Here’s Hoping You’ve Paid off the Mortgage
The outgoings for current retirees make it clear that most of them are mortgage-free homeowners. Housing costs were less than $250 a week for every level of spending for one-person households, which includes rates, maintenance and energy costs. Two-person households all spend less than $350 a week.
Even with more than $1 million at retirement, the sums only add up if your housing costs are negligible. No problem for most Boomers, but for Gen X and Millennials, home loans tend to be hefty. The retirement guidelines suggest that you should work aggressively to have your home loan cleared by the time you retire. Otherwise you’ll need a lot more money in the bank to rent or keep paying down debt.
How Much Travel is in Your Future?
Most people like to imagine travelling once they retire, whether it’s to visit the grandchildren or see those bucket list sights. There is no line item in the expenditure guidelines for travel. ‘Recreation and culture’ gets a small weekly budget: ranging from $34 for one person provincial up to $250 for two-person provincial households.
That would give you, at most, a budget of $13,000 a year to cover all the recreation and culture for two people, which isn’t much of an international travel budget. If you would like to spend four weeks of the year travelling the world, even the million-dollar lump sum isn’t going to cut the mustard.
You can Save Over $1 Million
One of the main messages of the retirement guidelines is that you don’t need to save a huge amount, so don’t feel daunted – just put away a little bit and you can do it.
Our message is similar, but see if you can spot the difference: You can save a huge amount, and live an exciting travel-filled retirement, you just need to invest intelligently and start early enough.
Compounding makes a $1,000,000 lump sum entirely achievable, even for an individual. If you start at 30, earn $120,000 a year, and contribute 10% to an aggressive KiwiSaver (with your employer tipping in 3%), you’ll have a nudge over $1.1 million at age 65, and that’s adjusted for inflation. Or it might be a combination of $500,000 in KiwiSaver, $300,000 from downsizing your home, and another $200,000 in other investments. Add a small inheritance and the whole picture becomes even brighter.
A couple might retire with $250,000 each in KiwiSaver and $500,000 cash from downsizing their home. Job done. They could potentially double that if they have high incomes and put them to good use.
Yes, you probably do need at least $1 million to enjoy plenty of dining out and travelling in retirement. But $1 million is not a ridiculous or insurmountable sum. It’s completely achievable – if you don’t know where to start, talk to your financial advisor.