Will you be sitting pretty when you retire?
Debates around raising the age of eligibility for NZ Super and changes to KiwiSaver are shifting the focus from the fact many people are not saving enough for their retirement, the ANZ Bank says.
There has been a barrage of suggestions for pensions policy change in recent weeks but John Body, ANZ head of wealth, said: "We don't want the focus of the debate to be hijacked by discussions about the age of eligibility."
Even if the age of eligibility did move out to 67 or was linked to increasing longevity as suggested by the Commission for Retirement Income and Financial Literacy, Body said if people did not save enough, they still faced a difficult retirement.
And for many of those who are relying on KiwiSaver to generate a nestegg to fund the lifestyle they want in their old age, saving at the rate of 3 per cent of their salary, with the employer chipping in a matching contribution, just won't get them there.
ANZ research shows about half of people who are regular KiwiSaver contributors are confident of achieving their retirement goals but the scheme's effectiveness is undermined by those who have put their contributions on hold and the numbers saving into cash-heavy conservative funds.
So how much is enough?
There are competing claims around how much people will need to live comfortably and once they have settled on an amount they want to supplement NZ Super, they then have to work out the route that will give them the best chance of getting there.
ANZ's research shows what individuals think they will need in addition to NZ Super and their responses are banded by age.
Those nearing retirement appear to have the most realistic view on that.
In the 55-64 age band, the largest group (41 per cent) indicated $150 to $299 would be needed above national super while 39 per cent thought they would need more than $300.
Whatever the amount, the question then is how much of your income do you need to save to get there? ANZ has crunched the figures on a fictional person and it indicates the kind of saving patterns an ordinary Kiwi would need to adopt to allow them to enjoy their retirement.
Starting young is a clear priority, because while weekly saving contributions remain manageable for many, it starts getting more onerous once a saver gets much past the age of 35. All future projections require assumptions to be made and if something happens, such as losing your job for a period, your plans would need to be altered.
In the fictional case, ANZ assumed 2.5 per cent annual salary increases and 2 per cent inflation.
It also assumed people would not place all their KiwiSaver contributions into a conservative default fund, which many are currently doing, but instead save into a "lifestages" fund.
This starts off heavily invested in growth assets such as shares, but progressively shifts into safer investments such as bonds as people age.
It also assumes that when people hit retirement, they leave their money invested in KiwiSaver in a conservative fund and progressively draw down on the capital at the future equivalent of $150 or $300 a week for 20 years.
That "deaccumulation" of funds is what KiwiSaver managers would like to become popular as they could charge fees for longer.
Such drawdown options, which are already offered by some schemes, mean that people are taking "longevity" risk - the risk they will outlive their money by living for more than the 20 years in retirement they planned for.
As yet New Zealand does not have an annuity market to provide an alternative income that would last for all of retirement, however long you live.
The figures in the table are based on individuals, yet at retirement many are coupled with a partner.
As NZ Super rates reflect, a couple can get by on 160 per cent of what a single person can through sharing basic costs.
That can mean for some that $150 or $300 a week a single person might believe is needed, could perhaps be seen to equate to $240 or $480 when shared between two.
How much do you need?
Everyone has to decide for themselves what they will need on top of NZ Super, which is $357.42 after-tax weekly for a single person living alone.
There is plenty of advice and columns freely available online on how to start thinking about it.
Written by Rob Stock. First appeared on Stuff.co.nz.