If you have a goal of saving $500,000 for retirement, what steps do you need to take to reach that target?
New retirement spending guidelines released by Massey University offer updated insights into the costs associated with a “no frills” and “choices” lifestyle in both metropolitan and provincial areas of New Zealand.
The university’s estimates suggest that for a “choices” lifestyle in a city, a single-person household would need to have saved $271,000, while in a provincial center, the required savings would be $252,000.
For a two-person household, the savings target would be $571,000 per person in a city and $223,000 per person in a provincial area.
Here are some strategies to help you reach these savings goals:
40 years to save $500,000
If you’re 25 years old and plan to withdraw the money at age 65, time is on your side.
To save $500,000 with a 5% annual return, you would need to save $142 per week. However, with an 8% return, you could reduce your weekly savings to $70.
If you earn $60,000 per year, contributing 8% to a balanced KiwiSaver fund with a 3% employer contribution could help you achieve this goal.
By switching to a growth fund, you could reach $500,000 with a 6% contribution.
For those earning $100,000, a 5% contribution to a balanced fund could be sufficient.
30 years to save $500,000
To save $500,000 in 30 years with a 5% return, you would need to save $218 per week. With an 8% return, your weekly savings could be reduced to $132.
Someone earning $80,000 starting from zero in their KiwiSaver account would need to contribute 10% along with their employer’s 3% to reach the target.
20 years to save $500,000
With a 5% return, you would need to save $374 per week.
10 years to save $500,000
To save $500,000 in 10 years with a 5% return, you would need to save $850 per week.
Kirstien Taylor, a KiwiSaver adviser at Generate, emphasizes that factors such as fund choice and starting early can significantly impact your final balance.
Choosing an aggressive fund over a balanced fund can make a substantial difference in your returns.
It’s important to note that past performance of funds may not always align with future returns.
For those aiming for a lower total, the required contributions would be less.
40 years to save $250,000
With a 5% return over 40 years, you would need to save $71 per week to reach $250,000.
For someone earning $60,000 annually contributing 3% with a 3% employer match, reaching $250,000 over 40 years could be feasible.
30 years to save $250,000
To save $250,000 in 30 years with a 5% return, you would need to save $109 per week.
If you earn $80,000 and start contributing 3% to KiwiSaver with a 3% employer match, you could accumulate just over $200,000 in 30 years.
20 years to save $250,000
With a 5% return, you would need to save $187 per week, or $136 with an 8% return.
For someone starting out in KiwiSaver with an annual income of $100,000, an 8% contribution with a 3% employer match could help reach the goal.
10 years to save $250,000
To save $250,000 in 10 years with a 5% return, you would need to save $425 per week.
Someone earning $120,000 and contributing 10% to KiwiSaver with a 3% employer match could come close to $190,000 in a balanced fund in 10 years.
Generate adviser Stephanie Whittaker highlights that consistent contributions over time can lead to substantial savings.
Choosing the right fund and seeking professional advice can make a significant difference in your retirement savings.
By making informed decisions and maximizing the potential returns on your investments, you can work towards achieving your retirement goals.
