How much money do I need to retire?

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Article originaly posted on sorted.org.nz 

It’s a tricky question to answer – especially without the help of a financial planner. How much do I need to retire, and even when can I retire? Today we break it down into some simple figures you need to know just how much money you’ll need to retire, and when you’ll be able to do so!

Figure 1: Average life expectancy

240_f_136616045_2o0ejxcuzxxothlxfv08aghyaaymolfgDid you know that the average life expectancy in New Zealand is probably higher than you think? For instance, if you’re a 55 year old woman, you can expect to live to 89 on average! For men, the expectancy is 86. This might be considerably older than your parents, and much older than you thought you’d get to.

If you were planning on retiring at 65, when you can start receiving the NZ Super pension, you’ll see that there’s an average of 24 years of retirement ahead of you. This is a huge amount of time!

  • Life expectancy for a woman of 55 – 89 years
  • Life expectancy for a man of 55 – 86 years

Figure 2: Average cost of living per week

240_f_158947381_hdy4i65cdom9j0z7cvxsntp5oayica2kHow much will you need to live on per week, as a retiree? In a new study from the Westpac Massed Fin-Ed Centre it works out to be the following:

  • No Frills lifestyle (single, metro) – $490/week
  • No Frills lifestyle (couple, metro) – $523/week together
  • No Frills lifestyle (single, regional) – $419/week
  • No Frills lifestyle (couple, regional) – $678/week together
  • Choices lifestyle (single, metro) – $754/week
  • Choices lifestyle (couple, metro) – $1092/week together
  • Choices lifestyle (single, regional) – $782/week
  • Choices lifestyle (couple, regional) – $1012/week together

Figure 3: NZ Super per week

 240_f_82459331_bkttxbi6hlnazdsbuhcebqzqpgt9o4aqNZ Super is the pension that you’re eligible to receive from the government, once you’re over the age of 65 – even if you’re still working. So long as you’ve lived 10 years in the country since age 20, with at least 5 of these years since you turned 50 – then you’re eligible.

The current rates for NZ Super are:

  • Single, living by yourself – $390.20/week
  • Single, sharing with others – $360.18/week
  • Couple, both qualified for NZ Super – $600.30/week together
  • Couple, only one qualifies (affected by income) – $570.56/week together

Figure 4: KiwiSaver savings

Hopefully, throughout your working life, you will have accumulated some funds in a KiwiSaver account, or through other retirement investment accounts.

The amount that this account holds is purely dependant on what you (and your employer, potentially) have contributed.

How much is in your personal retirement fund?

Culminating in… Expected retirement age

240_f_107515528_zogxlpjqlzykku86wf3qpilxe9qjgtq6By seeing how much you have in your personal retirement fund, how much you’ll be earning from KiwiSaver per week, how much you’ll need to live per week, and how long you expect to live for, you can calculate how much extra you’ll need to retire.

For example, if you are a 65 year old woman living alone wanting to retire, expecting to lead a No Frills lifestyle in retirement, with current retirement savings of $150,000 – you can expect outgoing costs of $39,208 a year. KiwiSaver contributes $20,290.40 per year. You’ll have a gap of $18,917.60 per year – meaning your retirement savings will stretch only for about 8 years with this lifestyle. This won’t even last you until you’re 73. In this case, it’s not recommended to retire as yet, if you can help it at all.

Do the maths to calculate just when is the best time to retire depending on your age, savings, and lifestyle choices.