Thinking about retirement?  How much do you need to fund the retirement you would like? 

If you Google “retirement calculator” you will see there is no shortage of online tools to help work out how much money you need to fund your retirement.  However most of the resources available assume an all or nothing retirement, ie working fulltime until age 65 (or some other specified age) and then never working again. 

In reality, this is becoming less and less common.   For many people, while they do reach a point where they want to scale back, they often don’t want to completely stop working.  In fact they would find a total and abrupt retirement quite daunting, and probably rather boring too.  They like their job and enjoy the social interaction, sense of purpose and challenge that comes from working – as well as the income. 

Part time work, or even periods of working then not working, are becoming increasingly common retirement situations; the traditional view of stopping work altogether at a certain age, never to work again, less so.

This more fluid approach to retirement adds further complexity to an already hard-to-answer question: how much money is enough to fund your retirement (whatever that looks like)?  

Amongst the factors that need to be considered are income streams (from working or elsewhere), future investment returns and volatility, inflation, tax, NZ Super, how long you are likely to live, different spending requirements at different stages of retirement, inheritance wishes, etc.

Unfortunately most of the online tools available to help are not flexible enough to deal with a modern retirement that may include some irregular periods of income, one off costs, and changes in spending requirements at different stages of retirement. 

My approach is to build a year by year financial model, starting from your current age, until an estimated year of death, factoring in all the things you know or believe about your retirement – income and costs, as well as assumptions around investment returns, tax, inflation, NZ Super, inheritances, etc.  And then treat this as a living model, to be revisited at least each year, or whenever circumstances or views of your retirement change (as they surely will). 

The model will show how much you need to fund your retirement, and how much you need to save/invest to get there.  It’s also very easy to change assumptions and inputs to see what the impacts are.  For example, you may see that saving and investing 10% more/year will allow you to start your retirement 5 years earlier.  Or by working part time for 3 years after your planned retirement age you can increase the amount you spend in retirement by $5k/year. 

Knowledge is power (and peace of mind)!  For most people, comprehensive retirement planning done early and revisited often is a very valuable exercise.


Dean Edwards


How much is enough?