A number of clients have asked me this question. Very broadly speaking, I say if you are debt-free you will need around half to two-thirds of your pre-retirement income.
There are two ways to tackle this.
One approach is to have a large enough sum of capital that invested at a certain rate of return will give you the 50% to 67% of your income that you require. The downside with this approach is it requires a large sum of capital to produce a worthwhile income, i.e. $2,000,000 will only provide an income of $50,000 if your real (net of tax, fees and inflation) return is 2.5%.
A more practical approach is to use your capital over time, which means your income is comfortably higher. Again, if you invested $2 million at age 65 it would pay you an annual income for 25 years (at which time you would be 90) of $107,316 if it earned 2.5% real.
One of the easiest ways of reducing your outlay for retirement is to work for longer. This has the dual benefit of not needing retirement income for the period you are working, and additional years to save and compound your existing retirement investments.
Note of course that at age 65 you will qualify for NZ super, which is not means tested. The rates are as follows:
Status Weekly rate Annual rate
Single: living alone $411 $21,380
Single: sharing $380 $19,735
Married, civil union or de facto couple: one
partner qualifies (other not included) $316 $16,446
Married, civil union or de facto couple: both partners qualify $633 $32,892
Married, civil union or de facto couple: one partner qualifies
and the other is included $601 $31,263
In my view NZ super should be viewed as a bonus to your retirement savings due to the fact that the government can change the rules on it.
My advice is to save as much as you practically can as soon as you can so that compound interest can work in your favour. Of course, having low fees and a good rate of return help, however, the biggest determinant of how much you accumulate at retirement is how much you save.