How much do I need to save for retirement?

Sonnie Bailey

20 April 2017 is a great resource for Kiwis. I was just on the Sorted Community Forum and came across an interesting conversation: “How much do I need to have saved for retirement?“. I felt compelled to respond. My response is below:

Congratulations on asking the right questions with plenty of time to go! 

The reality is, the answer to your question is personal to everyone and there’s a lot of uncertainty. Anyone who can give you a definitive answer is revealing more about themselves than providing any genuine insight. 

The answer to your question is deeply personal. For example, what is a comfortable retirement for you? 

I know retirees who rely on NZ super and they say they are the most comfortable they’ve ever been. If my wife and I were in the same position, however, we’d be miserable. For some people, a household income of $30k might be fine. For others, it might be $60k. For others, it might be $120k. This is for you to decide. 

A big part of the equation is that planning for retirement is riddled with uncertainty:

– Who knows what your retirement costs will be? In 20 years’ time will the cost of property, transportation, food, and the activities you enjoy bear any resemblence to what they are now? 

(A couple of things worth knowing: retirement villages currently involve an upfront cost in the vicinity of $350-600k (most of which you or your estate will get back after you vacate), plus weekly costs of between $100 and $150; residential care is often $900 to $1k per week, and may be subisidised by the governement depending on your means.)  

– Who knows what your health status will be in your retirement and the costs associated? 

A good way of thinking about retirement costs is that they are often “V” shaped. Often, people spend a lot of money at the start of their retirement, whether that be on travel, new cars or toys, or home renovations. Spending typically plateaus, until health issues and dependency take their toll and expenses start to increase again, for example, by paying for residential care. 

There other uncertainties:

– Will you be entitled to superannuation and what will it be? Might it become means-tested in the next 20 years? Who knows the amount you’ll receive in 20 years’ time? 

– Even if you generate significant wealth, who knows what your investments will return? You can look at historical averages, but the timing of whether you enter retirement in the middle of a bull market or a bear market can have a significant impact on the capital and income you have in retirement. 

I’m not a big fan of rules of thumb that are based on income (eg 70% of current income), because it implies that what you spend should relate to your income. A more accurate benchmark would be against what you spend. Google Mr Money Mustache or the White Coat Investor for some good resources about the value of having a high savings rate. The higher your savings rate, the less you actually need relative to your income (because you’re used to spending less). 

Where to from here? 

From a practical perspective, I like the idea of having a simple figure to work towards. For example, a paid off home and $1 million in income generating investment assets by age 65.

This creates a goal to work towards and a benchmark to ensure you’re on track. It also makes it easier to decide whether and to what extent you can make other significant financial decisions, such as helping children with buying a house. 

As with any important goal, you also need to question the goal occasionally. Don’t just say, “right, paid-off house and $1 million” and work blindly towards that over the next 20 years. Question it, keep thinking about the underlying assumptions and uncertainties, and let the goal evolve over time, to make it align with your broader circumstances, needs, and objectives. 

Update: I was asked to provide a shortened response and some links. Here goes:

Shortened response: There’s no one-size-fits-all answer because (1) it’s deeply personal in terms of what constitutes a “comfortable retirement” for you, and (2) there’s a huge amount of uncertainty about (a) what your needs will be (whether that be because of health, because of uncertainty about what assistance you’ll get from the government) and (b) the returns you generate from the amount you accumulate. You should have a goal, but it should be personal to you and you need to realise that no figure will be perfect and may need to change over time. I also suggest benchmarking your goal against spending rather than income – savings rate is incredibly important. 

Some online resources:

  • A couple of good articles on savings rate include:

– Mr Money Mustache’s The Shockingly Simple Math Behind Early Retirement” ( (which at the very least is instructive) 

– The White Coat Investor’s “6 Reasons to Have a Highly Early Savings Rate” (

  • Some good calculators online are:

–’s retirement planner calculator (

– Vanguard’s retirement nest egg calculator (

– The Crowdsourced FIRE Simulator (cFIREsim) ( )

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