What's the magic figure you need for a great retirement?
How much you need to retire depends on your own personal circumstances and what you expect out of your retirement. The easiest way to find out if you're on track for your retirement is to build your personalised KiwiSaver portfolio in just minutes – using the form to the right – or to book a KiwiSaver Check Up with the team at Advance Mortgage Solutions here.
The main things to consider when calculating how much you need for retirement
Determining how much weekly retirement income you need:
When assessing how much you need to retire you shouldn't get wowed by big savings numbers. Figures that KiwiSaver calculators show you, like $500,000 or $825,000 may seem like a lot, but you don’t know if that figure will give you the retirement you’re expecting.
Instead, focus on what that would be your weekly income (adjusted for inflation). Your weekly income is what your spending power will be when you hit 65 and is the easiest thing to compare to your current spending power (what your money buys you today).
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Depending on your circumstances, and whether you own your home or not, research shows you need to aim for 70 to 100 per cent of your current weekly income, including NZ Super. If you rent, you may need 100 per cent, whereas if you own a home mortgage-free, a 70 or 80 per cent income may be enough.
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That means if you earn an annual income of $80,000, you'll currently have a take-home income of $1,159 after tax and KiwiSaver contributions. To be comfortable in retirement, you will need an income between $811 (70% of your income) - $1,159 (100% of your income).
Saving 100% of your pre-retirement income sounds high. But, research shows a lot of people end up spending more than their current income in retirement. Aiming to save 100% of your income allows you that financial flexibility to take up the things you love doing.
In other words, entering retirement with a mortgage-free home helps as you won’t have to cover mortgage or rent payments with your savings. A word of warning though, don't expect your house to pay for your retirement. You still need somewhere to live, and it is unlikely you want to move away from your friends, family and grand children just when you have more spare time!
Maybe you could create a budget?
While international and domestic research provides a good benchmark, it's pretty generic; we think it is always useful to create a budget taking into account the life that you want to live in your retirement. You may want to go on a cruise every year, turn a hobby into a part-time gig to keep the income flowing, or leave the big city and put your feet up surrounded by nature.
A simple exercise you can do to figure out your figure is to work out the below:
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What are your current household expenses?
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What expenses will you no longer have when you enter retirement (kids, mortgage payments, car repayments and other such big-ticket items)
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What are the additional things you would like to do in retirement and how much are they likely to cost?
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Add these up and then add a 10 - 20 % buffer to provide for the unexpected costs that will inevitably crop up like your house requiring maintenance.
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Use the advice tool from our friends at kōura to see whether you are on track for a comfortable retirement.
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Revisit these figures annually to ensure you're tracking well against your goals
Why worry about retirement when everyone will get NZ Super?
We Kiwis are very lucky to have NZ Superannuation (also known as NZ Super) - the government pension paid to Kiwis over the age of 65. Any New Zealander that has lived in NZ for over 10 years can receive NZ Super and it's not income tested, meaning you receive it regardless of what your income or assets are.
NZ Super rates are:
- $462.94 per week (after tax) for a person living alone, and
- $356.11 per person for a married couple (as of April 1, 2022)
To conclude
Ultimately, your own retirement needs will depend on your personal circumstances. Think hard about the sources of income you may have at retirement like part-time income, NZ Super and your KiwiSaver fund. But think harder about future expenses, taking into account possibilities like having to support older or younger dependents in some ways, higher healthcare costs and the possibility of redundancy.