Knowing how much money you'll need in retirement is a crucial ingredient in your plans. While it's difficult to be certain, it's possible to come up with some broad numbers based on your age, your intended lifestyle and how you expect your investments to perform over time.
Determining a figure for annual expenditure in retirement is a personal question. One theory states that you should aim to have an income that is between two-thirds and three-quarters of your final pre-retirement salary. However everyone's lifestyle is different, and working with a financial adviser can assist.
Calculating annual expenditure during retirement is only the first step. Whatever figure you arrive at, you'll need to factor in life expectancy in order to come up with a final retirement lump sum.
The average life expectancy for a male aged 65 is around 19 years and for a female aged 65 is nearly 21 years1. Bear in mind that you should be preparing your finances based on a best case scenario – that you live longer than the average. If you're not yet 65, you should also remember that life expectancy has been steadily increasing for most of history.
Speak to your adviser
While the above figures are useful and provide food for thought, they can only ever be a guide since they don't take into consideration your personal financial circumstances. Ask your adviser to help you calculate figures that are specific to you.
Your adviser can help you decide what you consider to be a reasonable standard of living in retirement based on how you plan to spend your time. They can quantify this for you in terms of an annual income and then scale this up to produce a final retirement lump sum based on life expectancy and likely investment returns.
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1 New Zealand Period Life Tables: 2010–12 –Statistics New Zealand