$1,000: the magic number?

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$1,000: the magic number?.

Over the years when we've asked people how much money they think they need to live on in retirement the most common answer we hear is $1,000 per week. It's a nice, round number. It feels like a good amount of money to have at your disposal. But have you stopped and thought about what it actually takes to achieve that?

If we consider the example of someone retiring today who is single and living alone, they will receive $355.68 per week (after paying tax of 17.5%) from NZ Super. That leaves a shortfall of $644.32 to fund from their savings and investments.

At today's interest rates (we've assumed a flat 4% which is at the high end of what's currently available) they would need approximately $1,015,000 of savings in the bank to generate income of $644.32 per week.

Not only does this example reinforce just how much of a difference the regular, guaranteed pension payment makes to our income in retirement, it highlights how much you may need to save for the retirement lifestyle you desire. We're obviously at a low point in the interest rate cycle so this will move around over time.

Saving a million dollars may sound daunting at first but as the table below illustrates, from a little comes a lot. You can change your contribution rate at any time by simply notifying your employer.

Age Income (before tax) Savings at 65 (in today's dollars) based on contributions of
    3% 4% 8%
20 $45,000 $341,154 $392,835 $619,348
30 $100,000 $407,404 $480,714 $788,899
40 $125,000 $287,633 $339,503 $558,418

These examples are simulated. Employer contributions of 3% are made and subject to contribution tax at current rates. Member tax credit contributions of $521.43 per year are received throughout the saving period and no withdrawals are made. Returns of 5% after fees and tax each year are assumed. Inflation of 2% is assumed.


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