How much should I be saving?

A word of warning, this is a difficult question to answer simply. Many Kiwis put it into the too hard basket and delay planning for the future. It’s also one of the main reasons that companies no longer offer traditional pensions. For them, it was just too difficult, risky, and expensive to put aside enough for those future liabilities. Any calculation you try to do to figure it out will be filled with uncertainties. How much per year will I need to live on? What rate of return will I earn on my savings? How fast will my income go up during my working years? What will inflation be in the future? How many years will I live in retirement? Will NZ Super stay the same until I am 65?

There are many rules of thumb for what percentage of your earnings you should be saving for retirement. Save 10 % of your take home pay? Save a percentage equal to half your age in the year you begin saving for retirement? Somehow I think that these rules of thumb may oversimplify things. We often start saving slowly and ramp up our savings as we earn more.

How do you figure out a safe amount? I think the only way to be comfortable with whether you are saving enough is to set up a spreadsheet and play with the numbers. This may involve working backwards from what sort of lifestyle you want to have in retirement, so you may need a bit more information to get started with such a spreadsheet. I may post one in the future, but for today, I’m going to focus on an easy online calculator.

Luckily, the Retirement Commission has great calculators to get you started in thinking about this issue. Their website has a good retirement calculator that may help you figure out a starting point. Once you’ve had a play, have a read of how the calculator works and what assumptions are made before you settle on an amount.

Retirement Planner Output
Example output of Sorted’s Retirement Planner Calculator.

In the example output above, you can see that because I haven’t started saving for retirement yet, I only have the NZ Superannuation payments, thus a shortfall of $443 a week. Based on my age, I’ll need to save $213 a week to have my desired total income in retirement of $800 a week.

One critique of this calculator I have is that the recommended weekly savings amount it shows is constant. When I play with the numbers in a spreadsheet, I believe the weekly contribution is increased by the 2 % inflation rate but it could be made more clear on their site. I would argue that contributions should be increased with inflation and certainly should be increased by more than that with every pay rise if possible. Another confusion is that when entering lump sums you’ve already saved, it expects the future values of those amounts, so make sure not to use values in today’s dollars.

Their calculator is based on some assumptions. The net real return on investments after tax is assumed to be 3.6 % which is a 5 % return after fees and before PIE tax of 28 %. This seems conservative, because the calculator assumes a balanced fund rather than a growth fund. They also assume inflation is a constant 2 % and that payments received in retirement increase by the same inflation rate.

Even though it is not perfect, I think that the calculator at is a good start and for many will serve as a wake-up call to the need to start saving in earnest.

Finally, the old sayings still apply. Live below your means, save as much as you can afford, and increase your savings rate when you can. Figuring out if you are saving enough can be nerve wracking with all the uncertainties, so search for some other calculators and compare results. If you find a calculator you like, feel free to comment below.

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