A little extra saving means you can decide your retirement age

Last week I laughed until I nearly cried as I read the words of a 30-year old millennial hissing at the proposed new retirement age of 67.  Not because I think the prospect is in the slightest bit amusing.  The points made were cuttingly sharp and witty.  

As Nadine Charmers-Ross, the ex TVNZ presenter, wound herself into a fury, she finished with the thunderous threat: "You can expect to watch your grandkids grow up on Skype, because we'll be living somewhere else where we can make ends meet.  Then who knows who will pay for your retirement."  

Cards on the table Nadine, I'm not a boomer, but I just scraped in on the right side of the retirement lottery.  As a Gen-X with a 1970 birthday, I'll be joining the queue at age 65.  Those around me are finding themselves caught on the dividing line with anything from a six-month to two-year delay for those born in 1973 and 1974.

Millennials are the sufferers of the population time bomb.  Too few of you and too many wrinklys is a tilt you can't escape.  You've had student loans.  I caught the last free education train.  You're paying rent to boomers.  I was on the property ladder at age 23.  You have huge mortgages caused by spiraling capital gains.  I spent 10 years in a flat market but got a couple of good uplifts.  You emptied your KiwiSaver to fund a house deposit.  I was mortgage-free by then.

I know it's difficult for 1970 to speak to 1987, but let us have a bash. 

We are kids that grew up without safety barriers.  No one came to our sports day and no one told us we were good at anything.  Boomers have more money and you are better with technology.  We're the sandwich filling.  The "doers" who try to keep you both happy.

The next election may well be won or lost depending on the reaction of your generation.  But rest assured, the chameleons that have changed their views to capture your vote will need to scrape the flesh from another part of your wallet.  The age-65 vote is not free.  Whether it's tax increases that slow the economy and job market or healthcare and education cuts, something must bend if you decide you can't live with it. 

All we can do is present you with the numbers and let you make your decision.  

In today's money you need to stash away an extra $30,780 if you want to retire at 65 despite a pension age of 67 (each retiree gets $15,390 a year if they are married).

A 43-year-old born in 1974 will have to put away another $1000 a year to get to that target  If you're 35, the cost starts at $650 a year and our 30-year-olds can do it by saving just over $500 annually.  

This assumes your current salary increases by 1 per cent a year until age 65 (a good career will far exceed that) and your savings mirror this i.e. $500 added this year is followed by $505 next year.  It also relies on your fund manager making a return of 2 per cent a year after fees and tax and on top of inflation.  If they achieve this, there will be more than $30,790 available, but it's purchasing power will be roughly the same as it would today.

Percentage wise, most people need to save an additional 0.5 per cent to 1 per cent of income in order to pay for the age-65 option.  

The generation of 40-somethings on low income is worst off.  They don't have time on their side.  To compensate they'll need to start putting an extra 1.5 to 2 per cent of their income away.  Millennials will achieve it by adding another 0.5 per cent.  

A healthy retirement actually involves a savings contribution of 10 per cent of income.  Most of us are not doing this.  But at least by adding 0.5 per cent Millennials can make a decision on which way they want it taken out of their wallets.  Now it's quantified, have a think about it. 

Janine Starks is a financial commentator with expertise in banking, personal finance and funds management. Opinions in this column represent her personal views. They are general in nature and are not a recommendation, opinion or guidance to any individuals in relation to acquiring or disposing of a financial product. Readers should not rely on these opinions and should always seek specific independent financial advice appropriate to their own individual circumstances.