How to Calculate Your Personal Retirement Number

You've probably heard someone say it: "I need $1 million to retire." But where did that number come from? Was it a headline, a friend's guess, or just a round figure that sounds substantial?

Here's the thing: your retirement number is deeply personal. It's not about what your neighbor needs or what a magazine article suggests. It's about your life, your goals, and the income gap between what NZ Super provides and what you actually need to live comfortably.

The good news? Calculating your retirement number isn't as mysterious as it sounds. You don't need a finance degree or expensive software. You just need a methodical approach and about 30 minutes of focused time.

Before you calculate what you need to save, start with what you'll already receive. NZ Super is the government-provided retirement benefit available to New Zealand residents aged 65 and over who meet residency requirements.

As of 2024, NZ Super provides approximately $27,664 per year for a single person living alone (after tax), and around $42,656 per year for a married or partnered couple (combined, after tax). These figures are indexed to wages and inflation, so they increase over time.

Think of NZ Super as your foundation. It's reliable income that covers basic living expenses for many Kiwis. But it probably won't cover everything you want in retirement, especially if you have housing costs, want to travel, or maintain hobbies that require funding.

Example: Sarah is 52, single, and plans to retire at 65. She knows she'll receive approximately $27,664 per year from NZ Super (in today's dollars). That's about $2,305 per month. Her current expenses are $5,000 per month, though she expects them to drop slightly in retirement when she's no longer commuting or buying work clothes.

Now comes the important part: how much do you actually need to live the retirement you want?

Start with your current spending. Look at your bank statements from the past three months and categorize your expenses:

• Essential costs: Housing (mortgage or rent), rates, insurance, food, utilities, healthcare, transport
• Discretionary spending: Entertainment, dining out, hobbies, travel, gifts
• Work-related costs: Commuting, professional clothing, lunches out, professional memberships

Most people find their retirement expenses run at about 70-80% of their pre-retirement spending. You'll eliminate work-related costs, possibly downsize housing, and might reduce some expenses. But you'll likely increase spending on leisure, travel, and hobbies, at least in early retirement.

Be honest about lifestyle inflation. If you're currently spending $4,000 a month but only because you're aggressively saving, your true comfortable lifestyle might cost $5,500. Use the higher number for retirement planning.

Example continued: Sarah reviews her spending and identifies $800 per month in work-related costs she'll eliminate. But she wants to travel more and pursue photography. She estimates her retirement living costs at $4,500 per month, or $54,000 per year.

This is straightforward math:

Annual Income Gap = Desired Retirement Income - NZ Super

This gap is what your retirement savings, KiwiSaver, and any other income sources (rental property, part-time work, investments) need to cover.

Example continued: Sarah's annual income gap is $54,000 (desired income) minus $27,664 (NZ Super) = $26,336 per year. That's about $2,195 per month she needs to generate from her savings.

If you're part of a couple, run this calculation for your combined household income and combined NZ Super entitlement. Remember that couples receive less per person than singles living alone, so factor this into your planning.

The 4% rule is a retirement planning guideline suggesting you can withdraw 4% of your retirement savings in the first year, then adjust that amount for inflation each subsequent year, with reasonable confidence your money will last 30 years.

To find your retirement number using this rule:

Retirement Number = Annual Income Gap ÷ 0.04

Or, more simply: multiply your annual income gap by 25.

Example continued: Sarah needs $26,336 per year from her savings. Her retirement number is $26,336 × 25 = $658,400.

The 4% rule originated from US research analyzing stock and bond returns over 30-year retirement periods. While New Zealand's investment landscape differs slightly, the principle remains useful as a starting framework. Safe withdrawal rates are a topic worth understanding in depth, especially regarding New Zealand market conditions.

Important considerations: The 4% rule assumes you're invested in a balanced portfolio (typically 50-60% growth assets, 40-50% income assets), you're retiring at a traditional retirement age, and you want your capital to last 30+ years. If you're retiring earlier or want a higher safety margin, you might use 3% or 3.5% instead.

Your retirement number calculation isn't complete until you've factored in your unique circumstances:

Mortgage-free living: If you'll own your home outright by retirement, your income needs drop significantly. If you're still paying a mortgage, factor in either paying it off before retirement or including those payments in your retirement budget.

Health considerations: New Zealand's public health system covers many costs, but private health insurance, dental care, and potential aged care expenses increase as you age. Consider adding 10-15% to your budget for healthcare in your 70s and beyond.

Longevity planning: The average life expectancy in New Zealand is around 80 for men and 84 for women, but many people live well into their 90s. Plan for your money to last until at least age 95.

Inflation protection: Your retirement might last 30 years. Inflation erodes purchasing power over time. The 4% rule accounts for this by adjusting withdrawals upward each year, but make sure your investment strategy includes growth assets to combat inflation over the long term.

Part-time work or other income: If you plan to work part-time in early retirement, earn rental income, or have other income sources, subtract these from your annual income gap before calculating your retirement number.

Example continued: Sarah owns her home but wants to maintain private health insurance ($2,400/year). She's also considering part-time consulting work that might bring in $10,000/year in her first five years of retirement. She recalculates: $54,000 (desired income) + $2,400 (health insurance) - $27,664 (NZ Super) - $10,000 (part-time work) = $18,736 needed from savings. Her adjusted retirement number: $18,736 × 25 = $468,400. By working part-time initially, she's reduced her target by nearly $200,000.

Your retirement number is your total savings target, but you're not starting from zero. Calculate your projected retirement savings based on:

• Current KiwiSaver balance
• Ongoing contributions: Your contributions, employer contributions, and government contributions
• Expected returns: Historically, balanced KiwiSaver funds have returned 5-7% per year after fees over long periods
• Years until retirement

This is where compound returns work in your favor. Even modest contributions grow significantly over 15-20 years.

Example continued: Sarah has $180,000 in her KiwiSaver now. She contributes 6% of her $75,000 salary ($4,500/year), her employer contributes 3% ($2,250/year), and she receives the maximum government contribution ($521/year). That's $7,271 per year going into KiwiSaver. Assuming a 6% average annual return over 13 years until she turns 65, her projected KiwiSaver balance at retirement is approximately $440,000.

Her target was $468,400. She's tracking remarkably close to her goal and might even exceed it if returns are favorable or if she increases her contribution rate.

Here's where detailed modeling becomes valuable. While the calculations above give you a solid estimate, retirement planning has many moving parts: variable returns, changing contribution rates, sequence of returns risk, and different withdrawal strategies.

A comprehensive retirement model lets you:

• Test different scenarios: What if you retire at 60 instead of 65? What if returns are lower than expected? What if you travel heavily in early retirement then reduce spending later?
• See your runway: How long will your savings actually last under different withdrawal rates?
• Identify gaps early: If your current trajectory falls short of your goal, you can adjust now rather than at 64.
• Plan withdrawal strategies: Should you draw down KiwiSaver first or preserve it? When does it make sense to access other savings?

This is exactly what fidser. does. Instead of static calculations, you get dynamic modeling that shows your retirement income projection year by year, accounting for NZ Super, KiwiSaver drawdown, inflation, and investment returns. You can adjust variables and immediately see how changes impact your retirement security.

1. Forgetting about tax: NZ Super figures are usually quoted after tax, but if you're withdrawing from KiwiSaver or other investments, some of that income may be taxable depending on your total income. Factor in your expected tax position.

2. Underestimating healthcare: Public healthcare is excellent in New Zealand, but dental, optical, and elective procedures aren't always covered. Private health insurance becomes more expensive as you age.

3. Ignoring inflation: $60,000 today won't buy the same amount in 20 years. Use today's dollars for planning, but understand your actual dollar needs will be higher.

4. Being too conservative or too aggressive: A 100% conservative portfolio might not grow enough to beat inflation. A 100% growth portfolio might expose you to significant losses right when you need to start withdrawing. Balance is key as you approach retirement.

5. Planning to the average: If you plan for your money to last until exactly your life expectancy, there's a 50% chance you'll outlive your savings. Plan longer.

6. Forgetting the fun: Yes, you need to cover essentials. But retirement is also about enjoying the life you've worked for. Budget for travel, hobbies, and experiences, especially in your active early retirement years.

Your retirement number isn't set in stone. Recalculate it:

• Annually: At minimum, review your progress once a year
• After major life changes: Marriage, divorce, inheritance, job change, house purchase, or health diagnosis
• When KiwiSaver rules change: Contribution rate changes, like the upcoming shift to 3.5%, can impact your projections
• As retirement approaches: Once you're within 5 years of retirement, review quarterly to fine-tune your target date and withdrawal strategy

Markets fluctuate, your goals evolve, and life happens. Regular recalculation keeps you on track and allows for course corrections while you still have time.

Here's what often gets lost in retirement planning: your number is a guide, not a rigid requirement. Life is unpredictable. Maybe you'll inherit money, maybe you'll decide you love part-time work, maybe you'll downsize and free up capital, or maybe you'll discover retirement costs less than you thought because you're happier with a simpler life.

The point of calculating your retirement number isn't to create stress. It's to create clarity. Once you know your target, you can:

• Make informed decisions about how much to save
• Understand whether you're on track or need to adjust
• Plan confidently instead of guessing
• Sleep better knowing you have a roadmap

And if your current trajectory falls short? You have options: increase contributions, work a few years longer, reduce retirement expenses, generate additional income streams, or some combination of these. The earlier you know, the more options you have.

This article is general information only and does not constitute personalised financial advice. For advice tailored to your situation, speak with a licensed Financial Advice Provider. You can find a registered adviser at fma.govt.nz.