Forget the nest egg — what do the chicks look like?

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 paralysing news 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 money do I need to retire? Is it $300,000? $500,000? A million or two? It’s enough to stress anyone out.

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 $424 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.

Saving and investing this much a week for the next 30 years…	…produces around this much a week for 30 years afterwards.
$63	$100
$127	$200
$190	$300
$254	$400
$317	$500

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.

Saving and investing this much a week for the next 30 years…	…produces around this much a week for 30 years afterwards.
$56	$100
$112	$200
$168	$300
$224	$400
$281	$500

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 retirement calculator. 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.

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Comments

22 January 20
Greg Moyle

Your kid brother needs to speak to someone more competent to give financial advice
The amount mentioned is ridiculous, unless he is wanting the lifestyle of a rock star!
The staring point should be, what is the projected cost of his lifestyle at the date he wishes to be financially independent and how long does he expect to live beyond that date
Only when you have that information can a financial planner project with any accuracy the amount of investment assets required to ensure that he does not run out of money before he runs out of life!
10 January 20
Mojo Johnny

Never tell a financial adviser “Treat me as if I know nothing about this,” he said to the planner, “which I don’t”. That's suicide. Do some homework, there is a gazillion resources out there (DO NOT read anything about crypto-currencies). Remember that if it sounds too good to be true it almost certainly is.
29 April 19

Mary Smith Tell me that when you're 75
8 February 19
Mary Smith

Super and Kiwibank should be closed down.