I know that as individuals we don’t live as the average, but I thought it may be interesting (or depressing) to see how things may look for the average future retiree.

We will of course have to make assumptions. We will assume a university educated married couple with one child.

Now let’s plug in some averages.

• $10,000 per year in student loans. We will assume a 4 year course for a $40,000 student loan balance per person. These will be paid off after around 8.5 years.

• We will assume they start earning income from age 23. Loan is paid off at the minimum rate. Employer matches 3% to KiwiSaver

• Income is the tricky assumption. You would assume a University graduate earns more than a non University graduate. Of course this is by no means not always the case, but on average it will be. We will use the median figure of around $57,000 a year (pre tax). Recent graduates tend to earn less than someone with more experience, but they also can earn more than someone without a degree, that’s why the median income level seems a fair assumption.

• The national saving rate is currently around 6%. We will assume 6% of income is saved. in other words, 94% of income on expenses. Every year thereafter expenses to increase with inflation.

• We will assume child is had at average age of 30.

• For the first 5 years of the childs life we will assume either a loss in income or gain in expenses of $35,000 a year as many parents go part time or send kids to daycare.

• From age 50 with kids out of the house we will assume a 10% reduction in expenses. Also a reduction of $61,800 from age 65 when mortgage paid off. We will assume another reduction of 10% at age 70 as expenses may reduce.

• We will assume average investment returns of 5%.

• Inflation 2.5%.

• We will assume NZ Super of $42,000 each from age 67, increasing thereafter with inflation.

• We will assume both work to age 65.

• We will assume they buy a house at average age of 35. Assuming a 3% increase in house prices per year, we will assume median house price of $1.2 million by then. Most first home buyers buy in the lower quartile which will be less than that, but the regions help to bring down the median from the main centres. In case they live in a main centre we will assume they buy a $1.2 million house right on the median. We will assume a 20% deposit and a 30 year mortgage at average 5% interest rate. We will assume the mortgage and housing expenses simply replace the rent repayments.

The average retirement in new zealand is not looking good

In this scenario running out of money at around age 91.

This scenario could be made to look a bit better with a small reduction in expenses or a small increase in income beyond inflation. Likewise, they would have equity in the house they could use too. So it isn’t too dire.

But it is a pretty ideal scenario financially speaking. Two income household with just one child. NZ Super still remaining in its current format and increasing each year with inflation. Saving straight out of University (I wasn’t that good with my money at age 23!). Being fully employed until age 65 with not much slowdown or breaks. Or having two or three kids, instead of one. Or a single income household vs a dual income household. I also used the median income of two individuals instead of a household. Median household income is a much lower amount than we assumed. If we just change one variable where they don’t get serious in saving money until just age 26 (just a three year delay), then it makes a 9 year difference! Running out of funds at age 82.

Of course there are also variables that could make the situation look better, such as higher investment returns or larger than inflation pay increases. Downsizing house, an inheritance, and so on.

The point is that retirement is not as rosy at it may have once been. We are living longer. Student loans are taking longer to repay. Houses are taking longer to buy. These are having a massive impact on our ability to save for our retirements. Everything is getting pushed out further and further.

3% in KiwiSaver will be no where near enough for the average person/household.

So if you aren’t getting serious about it consider this a kick up the pants. it’s never too early to plan for retirement.

If you are older and reading this don’t despair. It’s amazing how small changes can make a significant difference.

If you need help with your personal retirement planning, then get in touch today.

The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here