5 manageable & effective savings strategies for retirement

Posted July 2017

Is it any wonder that Kiwis just like you struggle to save enough money for retirement? Everyday expenses make setting aside money for even short-term expenses like financing a new car or a trip to see the family difficult enough, let alone something that, for many, can feel so far away.

Consider that the retirement age is currently 65 - and on the rise - and you'll quickly see just why retirement falls so far down the list of priorities for many younger New Zealanders. It's what, 15, 20, or even 30 years away, right? You'll get to it some day!

But when that 'some day' comes, will you really have saved enough for more than a rainy day?

Without a regular source of income to rely on, you need enough money saved away to maintain your quality of living well into your later years. By considering your retirement now, you'll give yourself the best shot at avoiding the dreaded week-to-week struggle. We think you'll agree that you deserve better than that! 

That’s why today we’re sharing 5 great savings strategies that will help you set money aside and start preparing for your retirement.

Up first? Let’s look at how much you’ll actually need to save…

1. Calculate how much you’ll need to retire on

According to Stuff.co.nz, many Kiwis have no idea how much money they’ll need to be able to comfortably retire on. In fact, how much you think you need to save often doesn’t come close to the amount you’ll actually need.

Without a firm number, you could risk saving too little, and find yourself struggling later in life just to meet your basic financial expenses. More than that, trying to complete any goal in life is difficult enough, but it’s made that much harder when you’re not sure what you’re working towards.

Take New Year’s Resolutions, for example. We all make them, but do you ever achieve them? How often have you decided to ‘lose weight’, ‘be more active’ or ‘save more money’? The problem with vague goals is that they’re open to interpretation, and lack any way to measure your progress. 

The best part is, you don’t need any confusing software or spreadsheets to do this. Instead, simply plug your numbers into an online retirement calculator like Sorted’s Retirement Planner, and you’ll come away with a good idea of how much you’ll need to save to retire in comfort.

2. Get your budget retirement ready

There’s a difference between saving money and then spending that money wisely. So as you think about retiring, it can be useful to sit down, run through your expenses, and create a new budget. The last thing you want to do is hit your savings goals, and then come up short because you've let your spending run wild.

Pre- and post-retirement budgets are quite different things. For one, you won’t be able to rely on your primary source of income, so you’ll need to calculate just how much you’ll bring in from the likes of Superannuation, KiwiSaver, and your retirement nest egg.

Your expenses will be different, too. Even your regular grocery bill will change. If there’s anything you’ve planned on doing during your retirement years - travel, renovations, spoiling the kids or grandkids - then be sure to chuck those in too.

By creating this new budget, you'll come away with a better idea of what you need, what you have, and ensure your money goes as far as you need it to.

3. Pay down your debts

Saving money is difficult enough without an old loan or debt chipping away at your nest egg. That's why now is the best time to start paying off your debts so you can live your (retired) life debt-free.

Doing so could mean you don’t save as much as you could, but the positives of being free of crippling debts far outweigh the negatives.

A savings account that pays out a few % in interest won’t be earning you as much as the 12%+ that those credit card debts are costing, so make paying off debt during your working years your #1 priority.

4. Make the most of KiwiSaver

Kiwis tend to take Kiwisaver for granted, placing it firmly in the ‘I’ll get to it later’ pile. The trouble is, you may never actually get around to opening an account. Or when you do, it’s often too little, too late.

The crazy thing? The Kiwisaver scheme actually provides numerous incentives to combat exactly this, in an attempt to get Kiwis like you thinking about your retirement savings.

The Government’s member tax credit, for example, sees them making an annual contribution of $521.43 so long as your yearly contributions hit at least $1042.86. While it’s not the only savings or investment option for Kiwis thinking about retiring, an offer like this is just too good to pass by.

5. Open a term deposit or savings account

KiwiSaver is a great way to boost your savings, but it’s not the only option. In fact, it’s just one of a number of tools at your disposal that you can use to boost your savings ahead of retirement.

A savings account and a term deposit investment are a few of these options. So, which one is right for you?

Savings accounts, such as Unity's Online Saver, are a great way to put money aside while still being able to access your cash when you need it the most. Alternatively, if you’re looking to take the temptation to spend out of your hands, or are simply looking for the best rate, then a term deposit could be the go.

When making your choice, weigh up whether the variable, often lower rate of a savings account outweighs the flexibility it provides, or whether the higher, fixed-rate and guaranteed return of a term deposit investment might work better for you and your financial situation.

Bonus Strategy! Continue to increase your contributions

You know how much you need to save, and you think you have a strategy that will get you there. But there’s nothing wrong with giving yourself an extra helping hand. They do say it’s better to be safe than sorry, right? When it comes to your retirement savings, we think you’ll agree.

This strategy? It’s easy. Simply set aside a day each year when you’ll increase the annual amount you’re contributing to your savings fund. This could be your wedding anniversary, your birthday, or even New Year’s.

The idea here is to tie this increase to an important day so you don’t forget it, and then increase the amount you put away weekly, fortnightly, or monthly, by just 1-2%. While this may sound like a small amount, it all adds up over time!

Common sense will give you more than two cents to rub together in retirement

Saving is difficult. That much is true. But by crunching the numbers, finding out how much you need to save, and then taking advantage of the great savings options available to you, these strategies will make it easier for you to start setting money aside today so you can enjoy the fruits of a working life well-lived long into your retirement.