Caroline Ritchie: Going without is a test for retirement

Caroline Ritchie

MASSEY'S Fin-Ed Centre released some figures this week about retirement. They scared the pants off me, so I suggest you go and have a look for yourself.

The study showed that superannuation payments alone (even if they do exist in the future) will not be enough to live on in retirement for many New Zealanders. You shall need extra, via KiwiSaver, or something else, or you will go without. This going without does not mean simply cutting down on chardonnay or cancelling the Aussie trip each year. It means really going without.

Like not being able to go to the doctor. Or not buying contact lenses. Or no bridge club because the petrol is too expensive. It means the lifetime of choice and social stimulation that you have enjoyed may no longer be available to you.

I know all this primarily because I have spent 13 years in the industry, but also, in 2010, I conducted a test.

During that year I was between houses and marriages, so it was a good time for self-experimentation in general. I existed for three months on the budget of a single superannuitant, living alone. With no debt and a very small rental outgoing, the spare loot was $200 per week for absolutely everything.

It wasn't just scary, it was depressing. It was doable, sort of, but all the "basics" I had taken for granted had to be questioned. Whether to turn on the tumble dryer. Heating one room only. Which is cheaper, having the electric blanket on for one hour or making a hot water bottle?

Lot of supermarket brands got switched to the "no frills" versions, some of which were ghastly. Certain cans of baked beans eventually went uneaten. I stopped running the car to make sure the insurance commitments were met and rode a bike to work. I lost some weight. And some happiness.

Going out was only possible if other people paid for me and that was probably the worst of it: being, essentially, reliant on others for any fun. Wondering how I would cope with large, one-off, uninsurable expenses was frightening. A broken hot water heater or a tooth needing a crown would have set me back months.

The whole experience left a lasting impression.

How much you, personally, will need for retirement is naturally very individual. I do, however, suggest shocking yourself several times a year on the Sorted website. There are some excellent calculators to be had so please, use them all the time. I do mine monthly.

It is daunting, but it keeps things real. By checking in with yourself at regular intervals, it makes it easier to see if you are on track or not. If you are behind, it is so much less painful to fix, say quarterly, than if you wake up one day at 64.75 years old and find yourself out of currency.

The "how much is enough" question forms the basis of investment planning. Whether you do this on your own or use the services of a professional, this figure forms the crux of it. It gives you something to aim for, a goal.

Find your number. Add up what you spend now, shave a chunk off and decide if you could live happily on this later on. Use a calculator to see how much your KiwiSaver will be worth when you retire.

Factor in a little government Super. Find the gap, if there is any, between what will have and what you will need. Shoot for it with KiwiSaver. Or with KiwiSaver and an additional savings scheme (gives you more flexibility).

And then keep going as if the Super might not be there after all and as if your life depended on it. In a way, it does.

-Caroline Ritchie is a former AFA, sharebroker & portfolio manager. She runs Investment Stuff, an investment coaching service. Visit her at www.investmentstuff.co.nz. Statements in this column are not financial advice.