You may recall a certain commercial featuring people walking around, each carrying their own ‘retirement number.’ One needs $500,000; another $1 million; and another couldn't imagine retiring on anything less than $5 million. 

The idea of the number is straightforward. Goals and benchmarks are crucial – how can you plan, if you don't know where you want to end up?

However, when it comes to retirement planning, the variables are simply too numerous. Particularly for those in their 20s, 30s, or even 40s. Former U.S. Federal Reserve Chair Ben Bernanke once remarked, "Life is amazingly unpredictable; any 22-year-old who thinks they know where they will be in 10 years, much less in 30, is simply lacking imagination." 

Not only does life change over time – so does incomes, savings rates, spending patterns, inflation, interest, stock market returns, and countless other factors over which we have little to no control.

This is why financial planning is a continuous process, not a one-time event. As new circumstances arise, you will need to adjust your plans.

Start with Spending, Not Saving

Nobel laureate Daniel Kahneman once asked, “How do you understand memory? You don’t study memory. You study forgetting.” 

This philosophy applies to retirement planning too. It is futile to try and figure out how much you need in savings or income, if you don’t first have a firm grasp of how much it costs you to live.

In New Zealand, spending patterns tend to follow a general trend. It ramps up in your 20s-30s, peaks in your 40s-50s, then gradually declines with age. 

This progression makes sense; young people typically have lower incomes, limiting their spending. And in your 40s and 50s, you often have more responsibilities such as a mortgage or supporting a family. These typically coincide with peak earning years. 

As you age further, you're likely to be less active and, thus, spend less.

The Complexities of Retirement Planning

Retirement planning raises several tough questions:

• Do I have enough money saved?

• When should I start drawing my NZ Superannuation?

• What if there’s a market downturn just as I retire?

• What will my tax rate be in retirement?

• What investment returns should I expect?

• How can I ensure my money lasts?

The reality is that there are no concrete answers to these questions. The dreaded “it depends” applies here. 

The only way to address them is to pose more questions to yourself:

• How much debt do I have?

• What is my savings rate, and how will it change over time?

• What assumptions am I making about market returns?

• Will I have any dependents reliant on my financial support?

• How expensive is the cost of living where I live?

• How much of my portfolio do I plan to draw down each year, and how flexible will I be with this?

• How will my spending change as I age?

• What are my other sources of income in retirement (NZ Superannuation, KiwiSaver, part-time work, etc.)?

• What do I want to do with my money?

• How long am I going to live?

It’s crucial to align your investments with your goals. And as expectations meet reality, your financial plan will need to be updated.

The Importance of Teamwork in Financial Planning

One of the most critical yet often overlooked aspects of financial planning is ensuring that spouses or partners are fully onboard. 

Retirement planning requires the commitment and collaboration of both individuals in a relationship. This unified approach is particularly important when making calls about savings, investments, and retirement timing, as these choices will impact both individuals’ futures. 

Decisions about critical financial aspects such as determining realistic savings targets, selecting appropriate insurance coverage, allocating funds to KiwiSaver, and managing debt, should be made together. By collaborating as a team, couples can build a retirement plan that is robust, adaptable, and precisely aligned with their shared needs and goals.

The Ever-Changing Number

The truth is that your retirement ‘number’ will change as you age, spend down your portfolio, and adjust to actual returns versus expected ones. The question of how much you’ll need will likely shift over time. 

Given that many of us are living longer—80% of 65-year-old Kiwi men can now expect to live until 90, and 65-year-old Kiwi women until 94—your retirement funds will likely need to stretch further than you think.

How much is enough? By considering factors such as the number of people you’re planning for, the lifestyle choices you desire, and your anticipated living location, you can begin to get a clearer picture.

Tools like Sorted’s retirement calculator allow you to track your progress, set goals, and tick off milestones along the way. It’s satisfying to see the boxes ticked, giving you a sense of progress as you work towards securing your future.

The Value of Professional Guidance

While using online tools and planning with your spouse or partner is beneficial, there’s no substitute for professional financial advice to help you navigate the complexities of retirement planning. They offer objective insights, help with course corrections, and, perhaps most importantly, hold you accountable to your goals.

They are also on hand to assist when things go awry, such as managing cognitive decline in a spouse or handling momentous events like the transfer of intergenerational wealth ("Bank of Mum & Dad") to assist a young adult with a business venture or first home purchase.

In a world where change is the only constant, having a trusted adviser by your side can make all the difference in staying on track for retirement. A face-to-face relationship with your adviser adds a layer of confidence that can’t be replicated by DIY approaches or impersonal online tools.

Retirement is a significant milestone. With the right advice, consistent teamwork, and a flexible approach, you can ensure that your retirement number is more than just a figure in your head—it’s a reality you can achieve.

• Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay-based CEFEX & BCorp certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions. Article no. 372.

• The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz