Why should you have a retirement savings plan?

If you’re a young adult, or even in your 40s, it’s easy to put retirement saving and planning to the back of your mind. But why is it so important to have a retirement savings plan?

Goals and targets will keep you on track

See a financial adviser in your 40s, and then more often as you get closer to finishing work. They’ll help you to create your personal retirement savings plan.

Everyone’s financial, personal, and health situation is different, so it’s impossible to work out a savings target for everyone. But your adviser will give you a realistic figure to aim for. Then you can do the work to help reach your goals, and the plan will help keep you focused and motivated.

You’ll get in the habit of saving

Goals and plans help you get into, then stay in, the savings habit.

When you buy your first home, it’s hard to think about contributing to KiwiSaver for your retirement. But putting a little bit aside each pay cycle will keep you in the habit of contributing, and help your retirement nest egg keep growing.

You’ll benefit from long-term investment

If you start retirement savings in your 40s, you’ll have your money invested for at least 25 years. This is a great opportunity to get more returns – time is your best friend when it comes to investing, and the longer you’re invested, the better off you’ll probably be.

You’ll need extra money for your retirement

Unless your goals are very modest, NZ Superannuation payments are unlikely help you achieve them on their own. So, most Kiwis will need a ‘nest egg’ saved to top up their NZ Super. This is even more important if you want to keep up the lifestyle you have now after you’ve stopped work.

You’ll also need some money on hand in case of an emergency. Your plan will take all this into account.

A plan helps keep your risk profile up to date

As you get closer to finishing work, having a plan for your retirement savings will give you a rough idea of how to adjust your investments for your risk level.

You’ll probably want to reduce the risk you take on as you get closer to retirement. Your risk profile is based on when you plan to use your money, and how comfortable you are with investing. 

If you’ll have your money invested for 10 years or more, you might suit more growth investments. These are higher risk, with more ups and downs, but usually give better returns over the long term. But if you’re uncomfortable with higher risk investments, you might want to pick a more balanced or conservative approach.

But, as you get closer to using your money, you’ll probably want to move your money into more balanced or conservative investments. This means your balance will be less exposed to ups and – more importantly – downs in the markets.

When markets dip, they might take years to recover. At the later stages in life, you don’t have time on your side. And if you need your money before the markets have recovered, for when you retire, you could make a loss when you take out your money. 

Having a savings plan for retirement will keep you more in tune with when it’s best to switch into more conservative investment choices. 

You might weather life’s storms better

Sometimes bad things happen, like a relationship breakup or the illness or death of a partner, that might derail your future.

But if you have a retirement plan, you can consider these options early and allow for them.

Your retirement savings plan will probably include an emergency fund or ‘rainy day’ account, which could be a lifesaver in a crisis. You might also think about how insurance could help you.

Published 21 November 2019

 Story by Claire Connell, JUNO

Pie Funds Management Limited is the issuer of the JUNO KiwiSaver Scheme. You can read our Product Disclosure Statement here. All content is correct at time of publication date. This article is general in nature only and has not taken into account any particular person’s objectives or circumstances. Before relying on it, we recommend you speak with an independent financial adviser.