How much do I need for retirement?

As with all hypotheticals, figuring out how much you need to retire is pretty much like asking how long a piece of string is.

But that question is on the minds of most, if not all business owners following Prime Minister Bill English’s announcement his government will up the official retirement age to 67.

That means working for longer if you’re relying on public superannuation (assuming Bill gets his way at the election). Even though it’s a long way off, any change will throw out a whole lot of retirement plans.

However, we like to think people are a bit more ambitious than counting down the seconds until they turn 67.

What if you could control your own destiny and retire at a time that suits you? Say, at 60 instead of having to work for another seven years.

It’s possible (and we’ll explain how), but the first step is figuring out exactly how much you’ll need if you want to retire at the big 6-0.

Life expectancy

It’s a bit unpleasant to talk about, but the first point of data is figuring out how long you’re expected to live.

Even that question depends on a raft of lifestyle factors – but a good place to start is the official government tables on life expectancy (you can download the table on the top right of the page).

The government has also put together a calculator on what your life expectancy could be – based on all the available data from the government going back decades.

For the sake of argument, the Prime Minister, who is currently 55 – could be expected to live until he was 86.2 years old. Let’s be optimistic and round that to 87.

So, if he wanted to retire when he was 60 – he would need to have enough income to last 27 years.

How do you work out how much income you’ll need?

How much will I need?

Westpac, together with Massey University has put together research on how much income per week a retiree will need to live either modestly, or richly.

The number-crunching going on under the hood is staggeringly complex, but here’s the bottom line.

If you want to live with no-frills

You’ll need:

• $480 p/w if you’re a 1 person household living in a metro area
• $419 p/w if you’re a 1 person household living in a provincial area
• $523 p/w if you’re a 2 person household living in a metro area
• $678 p/w if you’re a 2 person household living in a provincial area

If you want to live with a few frills

• $754 p/w if you’re a 1 person household living in a metro area
• $782 p/w if you’re a 1 person household living in a provincial area
• $1091 p/w if you’re a 2 person household living in a metro area
• $1012 p/w if you’re a 2 person household living in a provincial area

So let’s assume Bill wants to retire back in Dipton with his wife and live well.

He knows that his life expectancy is 87 and he wants roughly $1012 p/w from the time he turns 60.

So – how do you work that out in a lump sum?

We used Bill’s example, which means he’ll need $52,624 per year. We then plugged that into a retirement calculator and came up with the final figure of… $993,375.

That’s nearly $1 million if he wants to live comfortably for the rest of his days – and sadly, national super isn’t going to cut it.

This is from the aforementioned Westpac and Massey University research, and as you can see in almost all cases there are shortfalls.

If you average those out over a lifetime – there are massive shortfalls on the cards.

In fact, for Bill, his shortfall would be nearly $428,957 (let’s set aside the fact he gets a nice parliamentary pension).

So, is there a way to retire comfortably?

Putting it all on black

An increasing number of people are building businesses with the sole intention of funding their retirement.

It’s a bold strategy, and we admire anyone who dedicates their life to building a small business.

How can it be done?

MYOB has put together a series of guides for building businesses in each decade of your working life – starting from your 20s.

They contain principles you should keep in mind if you’re building a business with an early exit in mind.

• Business building strategies for your 20s
• Business building strategies for your 30s
• Business building strategies for your 40s
• Business building strategies for your 50s

We hope they help you build a successful business – and you get to enjoy the golden years, whenever you chose to start.

This article contains advice of a general nature only – please visit a financial planner for more detailed planning advice