How much do I need in retirement?
The question everyone asks is; “How much do I need in retirement”?
The “I” of course is often a “we”, and the answer is difficult to calculate, unless we know precisely what someone’s lifestyle costs today, let alone what it may cost in retirement.
We find that most people cut their cloth to the pattern they’re most accustomed. Typically, when we’re working, we have mortgages, rates and insurances, kids, pets and all manner of costs that we don’t account for. But, by the time retirement approaches (and it sneaks up), we budget to make sure many of these things have cleared or are not nearly as demanding.
But what does retirement cost? Each year, we publish an article quoting the latest data from Massey University attempting to answer this question. They provide a detailed analysis and offer perspectives on a “No Frills” or “Choices” budget, for individuals and couples, living in either metro or provincial NZ.
A “No Frills” retirement indicates a basic standard of living with few luxuries, while “Choices” we believe is more akin to the lifestyle that our clients typically enjoy. The 2024 research suggests a couple living in metro NZ, enjoying a “Choices” lifestyle, would need $1,739pw ($90,000pa), which is a weekly shortfall of $941pw to the current joint NZ Super.
So, if our 65-year-old couple need an extra $941pw over and above the NZ Super to keep them in the manner to which they’re accustomed, that’s almost $50,000 a year that needs to come from investments held outside existing lifestyle assets (and this needs to be inflation-adjusted). If we hope for a good long retirement of 25 years+, then at the start, they’d likely need $1m in liquid assets that can release those sorts of cash flows.
Almost inevitably, in the initial years of retirement our lifestyle cost is more, because many of us want to enjoy those overseas holidays that we never took, because we didn’t have the time or money (because we were raising kids and reducing mortgages), but balancing this off are our later years, in our 80’s, where we don’t tend to spend as much (assuming residential care costs haven’t escalated).
Retirement planning is about knowing and weighing your goals and objectives, and tailoring both the accumulation and subsequent drawdown strategy. Working with a trusted adviser can help you see the wood through the trees, to make a plan that you can stick to.
The views and opinions expressed in this article are intended to be of a general nature and do not constitute personalised advice for an individual client.
