How much money do I need to have invested at 65?
23 Mar, 2025
It may be because my ears are finely tuned to anything money-related, but there seems to be increasing talk of saving for retirement. More specifically, people are not investing enough for retirement.
For this blog, I’m talking about the traditional retirement age of 65. Not early retirement.
Organisations are panicking on our behalf as they watch Kiwis nonchalantly wander their way to retirement, in many cases hopelessly unprepared, having barely given the financial side of stopping work a thought.
I’m well ahead of the game here, as I’ve been thinking about—and financially planning for—our eventual retirement for years. Plus, so my daughter won’t wake up in a cold sweat at retirement, I’ve had her invest in retirement since birth. Kind of extreme, but I don’t call myself The Happy Saver for nothing. I regret nothing after watching her balance compound and grow over the last 17 years.
It is interesting to read the Massy University New Zealand Retirement Expenditure Guidelines, which detail how much you might need if you live rurally or city-based and whether you will drink fancy wine or cannot afford to drink at all. Studies like that get me thinking about my situation and yours.
I have a question for you.
If you woke up tomorrow and found you were now 65 and would receive government superannuation but no longer worked, as your financial situation stands today, could you survive financially?
Your new household income would be roughly the following superannuation payment:
Weekly Annually
Single $520 $27,000
Married $800 $42,000
I’m keeping this simple, but for more information on New Zealand superannuation rates, check out Sorted: NZ Super rates – How much is New Zealand Superannuation?
Your first thought will likely quickly determine the difference between your current income and the pension, which is a helpful figure to know.
Our household after-tax income in 2024 was $130,000, give or take. If we had to survive on a government payment of $42,000, that would mean a $88,000 drop in income. Yowser!
Is it time we panicked?
No!
We are measuring the wrong thing.
If you want to calculate if you could survive beyond 65, of more importance is not what you earn in a year but what you spend.
Working this out right now, long before you turn 65, and while you still work, is the key to saving enough money for retirement.
Work out what you spend.
I’ll use my numbers so you can see what I mean.
In 2024, our family of three might have earned $130,000, but we spent, in total, about $82,000 to run our lives. We consider ourselves extremely fortunate to have a roof over our heads, food in the fridge, cars that work, a holiday or two and a secret ingredient: no debt.
If we woke up tomorrow, aged 65, we would receive an annual superannuation payment of about $42,000.
This would mean we have a gap of $40,000 between our superannuation payment and what we currently spend.
When planning for retirement, we are working out how to save and invest enough money to cover this $40,000 annual shortfall.
We must know this shortfall NOW, in our early 50’s, not on our 65th birthday. Knowing we have a $40,000 gap that the government will not cover means we can prepare.
I don’t want my life to come to a grinding halt at 65, and I want to continue to live the lifestyle I’ve been enjoying.
This is why we are investing as much as possible now: to cover that gap.
Calculating how to cover the shortfall.
There is a simple calculation you can make to put a number on how much money you need to invest before you retire so that you can draw an income from your retirement investment:
$40,000 (my gap) x 25 = $1,000,000
Today, if our spending stays at this level, having $1,000,000 invested in assets will generate an (after-tax) income of $40,000 annually.
Reaching your required retirement number is far more possible than you realise.
What is your retirement number?
Some will read this, hop on over to their spreadsheet with its 50 tabs, and know their annual expenses in an instant. Please continue being awesome.
Others will be completely flummoxed.
I wrote this blog post to help the flummoxed people: Financial Independence Series: Budget
Make yourself a coffee, tell the whānau to leave you alone for an hour, and review the last three months of bank transactions to determine each month's total expenditure. Then, take the average of these three figures and multiply it by 12 months. Now, you have a rough estimate of your annual expenses. Multiply that figure by 25 to get your retirement number.
Don’t freak out.
Do not be intimidated by this number.
Freaking out is wasted energy. Instead, get curious.
Now that you know your retirement number, you may wonder how much you have already saved and invested. Go and find out by tracking your net worth.
If you start from a zero net worth, reaching one million dollars feels like a stretch. But most of us (by the time we sit up and begin to pay attention) do not start from nothing. We have an asset or two, savings in the bank, KiwiSaver, and maybe even equity in a home.
If the gap between what you currently have and what you want is significant, in most cases, if you do this calculation earlier in life, you also have one huge advantage to help you close the gap: Time.
Whatever age you are, prioritise investing for retirement now.
You don’t need as much invested if…
I want to see you hit retirement with your gap fully covered. And to make it easier on yourself, I want you to start investing for retirement early in life or the moment you realise that you should.
The best time to open a KiwiSaver account was when it started in 2007. The second best time is…today!
Late starters shouldn’t NOT start. And if anything, those who wake up and realise they are not saving enough for retirement are some of the most successful people I know, as they generally can work, have the time to work, and have enough life under their belts to now know what to do with the money they do make. A good resource for late starters is Catching Up To FI.
While my $1,000,000 retirement number might seem like a big goal to hit, I have many options for how I hit it.
There are ways to reduce the amount of money you need to have invested for retirement.
WORK:
We currently have $600,000 invested specifically for retirement, which, if we retire today, is insufficient to cover $40,000 our gap. Therefore, at 65, both Jonny and I might decide to earn $10,000 apiece, reducing our gap to $20,000 yearly: $20,000 (our gap) x 25 = $500,000 invested.
Now, our $82,000 of expenses are covered in three parts:
Superannuation: $42,000
Working: $20,000
Money from Investments: $20,000
With the option to continue to work, we suddenly need less money invested, making our goal much easier to reach.
SELL OUR HOME AND DOWNSIZE:
If we turned 65 tomorrow, we would face the classic Kiwi dilemma of having enough money, but that money is in the wrong place. Currently, a large percentage of our net worth is tied up in our house and cannot provide us with any income. We could sell our home, buy a cheaper home for cash, AND inject a few hundred thousand dollars into our investments.
We currently have $600,000 invested for retirement. If we could sell our home and free up $200,000 to add to our investments (and buy a different house with cash), we now have $800,000 invested, bringing us ever closer to our retirement goal of $1,000,000 invested.
We are already there if we combine a downsize with working a little!
SPEND LESS:
We could spend less in retirement.
This is not actually my preference, though. I’d rather spend less now while I’m fit and strong, so I have more money to invest for retirement.
However, we could remove the $20,000 we spent on holidays last year, meaning we live on $62,000, reducing our gap to $20,000. Again, we now only need $500,000 invested. When you retire, some costs disappear, such as commuting to work or needing a second car, but some expenses, such as healthcare, go up. In the early stages of retirement, people spend more initially before their spending calms down a bit. I’m calculating that our spending won’t drop that much, and I’d rather err on the side of caution than think I’m suddenly going to budget even more keenly than I already do 😉.
I know, I know!
I know what you are going to say. “But Ruth, we might spend more or less in retirement than we do now. Our lives now will look very different at retirement”.
There are so many ways to live your life.
You might think you could get a boarder (many do, and they love it), you might think you are going to work until 100 (go you!), and you might be considering all manner of ifs, buts, and maybes.
I know. I get it. But we can’t predict the future.
So, let us look at the facts that we have today.
Last year, we spent $82,000, give or take. I can look back year upon year at our annual spending figures and use that information to predict my future spending. As the years trickle on and we adjust our spending, we can adjust the amount of money we might need to have invested for retirement.
Retirement planning is an inexact science. You have to remain flexible. You must think long-term. And you have to pay attention. I’m constantly scanning the horizon for opportunities and roadblocks.
What you invest in matters.
If I wake up at 65 tomorrow morning, I need to know that my $1,000,000 investment, as best as it can, will be able to support us in retirement reliably.
I’ve been blogging for almost nine years and speak with many people. From all the retirees I speak with who are doing well, I’ve observed that having a paid-off home or a long-term stable living situation, a KiwiSaver balance in the hundreds of thousands, and a simple, large passive ETF investment is what they find the most reliable and easy to manage.
From the retirees I speak with who grew wealth through investment property, most people reach a point/age where they find that managing property is too much work and the income is unreliable due to all the moving parts of the property. They sell their property and invest it in a KiwiSaver fund, ETF investment or similar.
There are other ways to invest, but the key is that the investment has to be income-producing or able to be sold a piece at a time. Some do use financial advisors who set them up with portfolios, and while this is an option, it won’t be the option for me. I’d prefer to manage and invest our money than hand that responsibility to a third party.
How do you use your invested money in retirement?
I won’t go into too much detail here; I’ve covered it in other blogs, but the gist is this.
For every $100,000 you have invested in a High Growth KiwiSaver, such as the fund I am in, or a large US or Global ETF/Index Fund, you can sell off 4% ($4,000) each year, and you have a very good chance that your money will last you 30 years before you run out.
If Jonny and I have $1,000,000 invested, 4% is $40,000 annually (tax-free).
This is known as The 4% Rule. And rather than being a firm rule, it is a reliable guide for retirement planning.
*Jump to the bottom of this article for more of an explainer of the math behind The 4% Rule.
Retirement: Spoiled for choice
The Massey study discusses having a ‘Choices Budget’ in retirement. The alternative is ‘No Frills.’
I want all the choices, please. But they are not going to be handed to me. I have to prioritise investing for retirement now to ensure I’m spoiled for choice when the day comes.
Too many Kiwis treat KiwiSaver and investing for retirement as a cost to our lives, an inconvenience or an afterthought. They tick the 3% KiwiSaver box and, without calculating their expenses, incorrectly assume they have retirement covered.
Or, they don’t sign up at all, thinking instead that they are better able to manage their own money - but then fail to manage their own money.
First-home buyers are advised and encouraged by their bank (whose interests do not align with yours) to drain their retirement savings to buy a home, not understanding until many years later how compounding investment returns work and having to start over again.
Many lament that you can’t touch your KiwiSaver till 65, but that is the entire point of it. You put the money in and keep your meddling hands off it. When you turn 65, you begin to use small parts of it and let it cover the gap between what NZ Superannuation pays you and what you spend.
The easiest way to save for retirement is by investing in KiwiSaver (or a similar type of investment) every month of your working life. I joined KiwiSaver in 2007 when it first began, and the $100 I invested back then has been hard at work for me ever since, as has every dollar I have added since. Invested money is not like saved money. Saved money sits in the bank, barely growing over time. Invested money is like having employees who work for you, day in and day out. As the years roll on, each employee gets so busy that they start to bring in their mates (compounding). Be an investor, not just a saver.
Now you know your retirement number, start planning your retirement.
Life has phases, and I enjoy moving through them. We get older, which is a privilege, and I want to make the most of it. Financially planning for retirement means I will enjoy myself when I get there, and with so much to look forward to, I know that money will help.
Playing catch-up five years out from 65 can absolutely be done, but it's less enjoyable than if you had calmly and methodically done it over your working life.
To the parents reading this, if you have children, teach them about investing for retirement. To those in their 20s-40s, your life is hectic. Assess your situation and bring your retirement savings higher up your priority list. For the 50+, welcome to your peak earning years. What is your retirement number, and how are you tracking towards it? Now is the time to design how retirement will look and how you will pay for it.
How exciting!
Happy Saving!
Ruth
*The 4% Rule Clarification
A fantastic resource for all things personal finance is Choose FI, created by American, Brad Barrett. They have a blog, podcast, and global meet-up groups. I subscribe to their weekly newsletter, and they often share valuable tips, such as this explainer.
4% Rule Math
I had a conversation with a close friend recently, and she had a question that always bugged her about the 4% rule and how the math worked.
I sometimes take it for granted that when we say, “Take your annual expenses and multiply by 25” that it’s understood that this is just another way of looking at the 4% rule, but since that is not obvious, I want to slow down on this and explain:
4% Withdrawal Math
Let’s say your annual expenses are $60,000, and you’re trying to figure out your FI (financial independence) number using a 4% withdrawal rate.
One way of looking at it is to figure out the multiplier you need to apply to your annual expenses to get to the FI Number.
If we’re using 4%, then you would take 100 and divide by 4: 100 / 4 = 25
Multiply $60,000 by 25 to get to your FI Number of $1,500,000
You can prove that out by then taking $1,500,000 and multiplying that by 0.04 (another way of writing 4%), and that is: $1,500,000 x 0.04 = $60,000
The same works if you’re using any other withdrawal rate.
Just take 100 and divide by the withdrawal rate you intend to use:
3.25% withdrawal rate: 100 / 3.25 = 30.77 multiplier (FI number: $60,000 x 30.77 = $1,846,200)
5% withdrawal rate: 100 / 5 = 20 multiplier (FI Number: $60,000 x 20 = $1,200,000)
