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Can we save more than 8% into KiwiSaver?

Q.        My wife and I are both 62. We (finally) paid off our mortgage 2 years ago and upped our KiwiSaver contributions to the maximum 8%. My account balance is at $61,000 while hers is just over $42,000. We are both on good salaries of around $70k each but we work long hours and would like to retire at 65. My question is, are we saving enough? We have $20,000 in ‘emergency cash’ but no other savings.
 
A.         At your current rate of saving, according to the Sorted website you will have around $81,000 in your account by the time you reach 65 while your wife will have $61,000 – this is $142,000 between you (these projections are approximate and have been adjusted for inflation). This could give you $150 per week over a 30 year retirement, using up all your capital by the time you reached your 90’s. 
 
Contributing 8% of your salary to KiwiSaver is just $5600 per annum on a salary of $70,000. While this is the highest option available through PAYE, there is no limit to the amount you can contribute on top of this. Anyone can increase their level of savings by setting up a direct debit with their fund manager or by topping up their account from time to time via internet banking (using the Make a Tax Payment option and selecting KSS). 
 
Given that you plan to retire within 3 years, you need to work out how much you will need to live on in retirement and start adjusting your spending now. The current rate of NZ Super for a couple is $564.52 per week or $29,355 per annum, after tax at M rate. As we have worked out, your KiwiSaver may give you another $150 per week taking your retirement income to $714 per week or $37,128 per year. Do you think you will be able to manage on that? If you think you could, then work out a budget now, and help yourself stick to it by diverting what you don’t need into savings as soon as you receive it (weekly, fortnightly or monthly). 
 
Because KiwiSaver is locked in until 65 you shouldn’t put all your savings there. Currently you will each be bringing home around $50,000 net per annum, or $950 per week. You could save 2/3 of your surplus income into your KiwiSaver accounts (say $400 per week each) and 1/3 into a bank savings account that you can access. This will boost your KiwiSaver savings from $142,000 to $230,000 by the time you reach 65. That would give you a much more comfortable retirement. You will also have your cash savings which could pay for holidays, car upgrades and unexpected medical or home repair bills.
 
The KiwiSaver calculators on the Sorted website allow you to experiment with different levels of saving. Of course, it also depends on the returns that your KiwiSaver account achieves both now and once you have retired. We generally assume that people retiring within the next 10 years will spend many years in retirement. Based on actuarial calculations, Sorted gives your life expectancy as 87 while your wife’s is 90. 
 
You are fortunate that KiwiSaver has helped you to save for your retirement, with input from your employers. Take advantage of the low fees, transparency and regular reporting to maximise your saving potential over the next few years. 
 
Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 870 3838 or go to www.peak.net.nz. The information contained in this article is of a general nature and is not personalised. Send your KiwiSaver questions to shelley.hanna@peak.net.nz
HB Today 2 December 2014