Do you need to have $100,000 or $1 million by the time you retire?

The Government wants you to save more, but the important question appears to be unanswered.

 

People know they should save, but don’t. This is due to a number of reasons, but a key one is people don’t know how much they need to save?

Government super is between 65 percent and 72.5 percent of the average national weekly wage. This equates to just $368 a week (after tax) for a married couple. Most households would struggle if this was all they had to live on. There are some clients who say they will have about $100,000 saved, which must surely be enough. But you have to take into account the time you will spend in retirement and what sort of lifestyle you want.

With medical advances, you can expect to live to at least 80. That means you will spend about 15 to 20 years in retirement. As a rough rule of thumb, you can add about $115 a week to your retirement income for every $100,000 saved. This makes $483 a week – it’s still not a lot once you consider the lifestyle you want to maintain.

The key is you need to decide what you want to do in retirement. Following through the example below will illustrate what you need to do.

 

First, what do you want to do in retirement? Make a list. Do you want to travel? Do you want to update your car every five years? Do you want to be able to go out to dinner every week? Do you want to visit the grandkids regularly? Do you want to play golf five days a week? Once this has been established, you need to put a rough budget together of how much this would cost based on today’s dollars.

Next, how much will this mean you have to have saved? There are simple methods of working this out, including using the Retirement Commissioner’s online calculators, available on www.sorted.org.nz, or any financial adviser will be able to do it for you.

Let’s say, for example, you need an annual income of $30,000 over and above the Government super for 20 years. That means you will need to have saved just under $500,000. It’s quite a lot for many to grasp. This figure will vary for each individual, but it is very important to go through this with someone.

Continuing this example, let’s say that you are 45 years old, which means you have 20 years until retirement. That means that you will need to put aside around $1100 a month.

Obviously, if you’re older the monthly savings will have to be greater, and if you don’t need that much to live on in retirement, they could be reduced.

The dilemma of saving for the long-term or spending up now is a balancing act – one few appear to have grasped. Many people start saving when they hit 50 – this being a magic age for some reason. Of course, by then it’s often too late to save enough to enjoy your retirement.

It is sad when talking to clients in their 50’s who have saved about $30,000 and realise that while they may be able to push this up to $100,000 by retirement, they will have to be very frugal in their living standards.  Trips overseas will be out of the question, as will new cars. Just affording the groceries, rates, power and petrol will take every dollar.

Below is a very approximate table of money saved and the income that can be drawn from it in retirement.

 

Amount saved at time of retirement	$100,000	$200,000	$300,000	$500,000	$1 million
Approximate annual income from savings	$6,000	$12,000	$18,000	$30,000	$60,000
Added to government super of $16,000 pa	$22,000	$28,000	$34,000	$46,000	$76,000

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