Bolster Risk Management – Simplifying financial risk, insurance and investments for you.

An ‘Envelope’ Example for retirement savings

Yesterday I was listening to a well-known finance commentator. They were saying that they didn’t agree with a caller who’d been advised they need a million dollars in savings for retirement. One of the clear things that we are taught as finance advisers, is that advice has to be ‘fit for purpose’ which means everyone’s situation is different. It is tough to give generalised advice when different scenarios require different solutions. That said, I did a back-of-an-envelope calculation to see what number might make sense in a very general way.

Key Takeaways:

  • A couple need nearly $1m (basic calculation)
  • A 3% contribution for a 35-year-old is not enough

In my example, a couple’s household income is $76,000 after tax. This is a fair number as half of Auckland’s households earn $70,000-100,000 before tax.

Now, let’s assume 30% of this is allocated for debt repayments. A mortgage plus credit cards and the like statistically consume about this much of most peoples’ income (and can often be closer to 40%). The assumption is that the couple have managed to clear their debts by retirement.


That leaves us $58,461. Now, assume that they only need 80% of this income, as retirement expenses are generally less than prior (kids have left home, less travelling to work…). That now leaves the couple with $32,478 a year to live and thrive on. Again, these are assumptions using averages, you’ll need to work out your own lifestyle needs.


The couple are planning to retire at 65, which in itself is becoming less realistic these days. We also know that ‘average’ life expectancy for men is about 91 and 94 for women.


This means we need to plan for an average of 29 years in retirement. 29 x $32,478 is $941,862 – a very simple calculation.


Note, this number is not taking inflation into account. Nor are we saying whether any of this income is coming from Superannuation, Kiwisaver or other schemes. Neither is there any assumption about interest earnings on the savings. NZ Super is currently paying $652 a week to a qualifying couple. The question is, with so much being spent to battle the COVID-19 pandemic, will NZ Super be available to people in 2-3 decades? Do you want to take that risk?

 A Scary Example for a 35-year-old

Using the online calculators at sorted.org, someone born in 1985 with 30 years working ahead of them needs to have $561,132 in KiwiSaver for them to retire on the $32,852 a year, close to that calculated above (without relying on NZ Super). [The Sorted.org weekly amount is actually $628, not $32,478/52 = $631]. They will need to have an income of $90,000 contributing 8% towards KiwiSaver with their employer contributing 3%. Calculation assumptions are: retirement at 65, life expectancy to 91. The fund chosen is ‘aggressive’. Again, the assumption with Kiwisaver is that it will continue to earn interest even as you draw on it.


Therefore, someone who is 35 today needs to have

  • an above average income,
  • contribute well above the standard 3%, and
  • invest in a fund that typically most people don’t choose (many are still in the default ‘conservative’ scheme, or only slightly better for the age group, ‘balanced’).

This is a tough ask.


It is a good idea for people to understand how much they might want in retirement, then use tools like KiwiSaver and other assets to help them save and invest. Don’t rely only on bank accounts, as the returns are currently woeful, which is the current price of security on your cash asset. If you are older than 35, investigate how you might generate an income past 65, while still investing in KiwiSaver and other assets.


If you thought that just contributing 3% was going to be enough, think again.

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