Building a retirement fund is one thing, but we might do better to focus on what kind of weekly income we can achieve with it.
My kid brother - who is just starting out in his career - met with a financial adviser the other day, his first foray into financial planning. "Treat me as if I know nothing about this," he said to the planner, "which I don't."
He was then given the paralysingnews that he'd need a nosebleed number of $2.1 million to retire on. Now for someone who is just starting out, and coping with a student loan, this was not exactly helpful.
Talk about scaring the horses.
These days, there's far too much emphasis on building a nest egg. The question often comes up: how much do I need to put away before I stop working? Is it $300,000? $500,000? A million or two?
It's far more important - and far less paralysing, I reckon - to think about how much you'll need as a weekly amount. Once you know what NZ Super will give you (currently $375 a week for singles), you can start to consider how much above that you'll need.
Sometimes I wish there were a calculator without any lump sums at all. For instance, let's say you have 30 years to go before you stop working. Investing in a balanced fund (assuming a return of 2.4% after fees and taxes and adjusting for inflation), and then spinning income off that balanced fund, your options basically look like this.
Sorted's retirement planner, while it does include lumpy nest egg numbers, provides a weekly saving target to shoot for in order to spin off a weekly amount in the future.
But with so much time on our hands to ride out the ups and downs of the market, we could look at investing more in growth assets like shares and property. Here's what 30 years investing in a growth fund (a return of 3.1%) and then spinning off income from a balanced fund would look like.
So you can still get results even though you're setting aside less. Again, it's not about the nest egg you're building; it's about the steady income you can achieve.
To crunch your own numbers, start with this planner. Or talk to a financial adviser - but brace yourself for that scary lump sum amount!
This is the one time you want to be counting the chicks before they hatch.
Get Sorted is written by Sorted's resident blogger, Tom Hartmann. Check out the guides and calculators at Sorted — brought to you by the Commission for Financial Capability — at sorted.org.nz.
