We know, talking about retirement savings when you’re in your 30s isn’t the coolest conversation starter. But it’s important to start thinking about it, even if it’s years, or decades, until you retire. Here are a few reasons why.
You don’t have to put away millions right now
We aren’t suggesting you need to start putting away thousands every year for your retirement on the day of your 30th birthday. You also don’t need to plan the financials for the next three decades of your life right away. But it’s a great idea to start just thinking about retirement. All you need to do is be conscious of your retirement and, if you can, start putting aside a little bit. So much research on retirement saving and investment shows the sooner you start, the better the result might be.
Your situation might change
You might not be thinking about retirement savings because you might be earning heaps. Or you might be expecting an inheritance windfall or house sale later in life. Or you might have a rich partner, so you’re all set.
But anything can happen over a lifetime and you might end up with less money than you expect. Or, your earning potential might change if your health deteriorates. Without getting too depressing – it’s better to be cautious than rest on your laurels.
It’s not just about retirement money. It’s about what that money can buy
When you think of retirement savings, it sounds so boring. But imagine using that money for a trip to Europe! Or something else on your bucket list.
Think about what that money might buy when it comes to your lifestyle, because that’s what counts. That’s why you’re investing the money for later rather than spending it now. The aim is to enjoy the lifestyle you want in your later years. You deserve it after years and years of hard work, and any money you’ve set aside can help you enjoy the fun stuff!
Starting early makes saving easier
James Paterson, a wealth adviser at Pie Funds, says he’s seen clients throughout his career who come to him worried about how much money they’ll have for retirement. For some, in their 50s, there isn’t that much earning time left before they plan to give up work.
To sum up: the earlier you start saving, the more time you have to accumulate the money you need, the less you have to rely on potential high returns, and the less stress you might feel. Investment returns compounding over time mean a few extra dollars now can make a big difference.
You don’t have to be saving millions for retirement, but it’s a great idea to contribute something.
NZ Super might not be around forever
When you retire, you’ll likely qualify for NZ Superannuation, which is money the government gives you for your retirement. While NZ Super might be regarded as a safety net, most Kiwis will likely need a top up from somewhere (eg KiwiSaver, or investments) if they’re going to enjoy a comfortable retirement.
It’s likely NZ Super won’t be sustainable in its current form long term for the government, because it’s expensive. More people are retiring (think Baby Boomers) and people are living longer. We can’t expect that today’s policy will remain when different parties might be in power too. Potential changes might include increasing the qualifying age from 65 to 67 – but no one really knows.
The sacrifices in your younger days will be worth it
It’s short-term pain, long-term gain when it comes to saving for your retirement. If you give up coffee for a few months now, it might be painful short term. But in your old age, you’ll forget those sacrifices you made and remember the bucket list trip you were able to use that money for.
KiwiSaver makes it easier to save long term
Contributing to KiwiSaver gets you forming savings habits you can use to save for other things. The scheme takes money away automatically from your pay, and you can only access it in certain situations. Your employer and the government add money alongside your contributions, which is an incentive. KiwiSaver is designed to work in the background, and slowly build up over a long period.
Published November 2018
James Paterson is the Head of Wealth and an authorised financial adviser at Pie Funds. You can access his disclosure statement free of charge at www.piefunds.co.nz. This article is general in nature only and has not taken into account any particular person’s objectives or circumstances. We recommend you speak with a financial adviser.All content is correct at time of publication date.