Survey reveals huge retirement shortfall

MARIA SLADE AND ELOISE GIBSON
Last updated 05:00 13/06/2012

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Many Kiwis will have to sell the family home or keep working into old age, if their only sources of retirement income are KiwiSaver and the pension, a new survey reveals.

An online survey by ASB shows a big gap exists between the size of the retirement nest egg New Zealanders say they need and how much they are actually saving.

ASB's executive general manager wealth and insurance, Blair Turnbull, said a lot of people would have to either increase the amount they were putting aside or look at other options to support themselves in their old age – such as downsizing their property or working past 65.

The survey of 723 people found that about half of those saving for retirement aimed to retire on $40,000 a year, with a target of $600,000 accumulated by the end of their working life.

However, in the last year, the 350,000 members of ASB's KiwiSaver scheme had saved on average $50 a week, including employer and government contributions and scheme returns, Turnbull said.

At that rate a person, 35, would accumulate $70,000 by the time they retired – $530,000 less than the average survey respondent aspired to.

This would provide them with a retirement income of $75 a week on top of the current pension of $349. "Many Kiwis do not yet understand the amount of money they actually need to put aside for the retirement they want."

The survey found women and young people were less likely to be providing for their twilight years. Less than half of respondents under 30 said they were saving for their retirement.

Turnbull said the bank planned to do more to educate its customers about how to maximise their savings effort, including teaching people about having a balanced investment portfolio.

"We have been very good at investing in our houses and our front lawns. We need to take a broader view. In your retirement you can't eat your house."

Another concept it wanted to push was the value of compounding interest, and how a little bit more saved today could make a big difference.

"Coins do count, especially if you get it in there early," Turnbull said.

ANZ's first retirement savings confidence barometer, released yesterday, found more than 60 per cent of respondents were saving but only half of them felt confident that their savings would be enough to pay for their retirement goals.

Thirty-eight per cent said they wanted an extra $401 or more a week on top of national superannuation. They were told that to get an additional income of $100 a week for 20 years they needed to have saved about $83,000, rising to $249,000 to receive an extra $300 a week.

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"KiwiSaver has been enormously successful but it's important we give people the tools so they [realise] that just because I contribute to KiwiSaver it doesn't mean I'm going to have enough in my account to live the life that I want to," ANZ Wealth and Private Banking New Zealand managing director John Body said.

HOW IT ADDS UP

BusinessDay did a calculation based on a 40-year-old woman earning $50,000 who plans to retire at 65.

Her life expectancy is 85, meaning she needs to fund 20 years of retirement.

She would like a retirement income of $500 a week, or $26,000 a year.

She would need to provide an additional $151 a week on top of the pension to reach her target.

Using the sorted.org. nz calculator, that means she needs put aside $99 a week now to save a lump sum of $117,558.

If the woman joins KiwiSaver and makes the current minimum contribution of 2 per cent of her salary, she would be saving about $39 a week, including her employer's 2 per cent contribution.

This is far less than the $99 a week needed to reach her retirement savings goal.

- BusinessDay.co.nz

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