Salting it away


Managing your finances is a balancing act between living for today and salting enough away for you to live comfortably at the end of your working life. But how much is enough? Here we look at some ideas to help you see if your savings are on track.

Are you saving enough?

So how much will you need to live on in retirement? A rough rule of thumb used in retirement planning is that you will need to be able to replace 70% of your pre-retirement income to continue a similar lifestyle in retirement. So, if your annual preretirement income was $60,000, you'd need around $42,000 a year. Assuming you wanted to support yourself for another 20 years, you'd need a lump sum of around $814,8001.

That may sound daunting, but the PSS is here to help. Here's an example. Sam is new recruit starting on a salary of $51,815. Her combined member and employer contributions to the scheme are $352.42 a fortnight. Assuming a constant interest rate of 5%, Sam could expect to have around $848,000 saved after 35 years 2. And that's without factoring in pay increases. (The other big assumption here is that Sam doesn't dip into her savings along the way, but that's another story.)

Rule of 72

So how much have you saved so far? And what could that turn into in 15 or 20 years? Enter the Rule of 72 - a rough and ready way of working out how many years it will take for your savings to double at a given rate of interest. Just divide 72 by the annual interest rate you expect. Let's say you have $100,000 invested at 4% per year. After 18 years, you could expect your investment to double to around $200,000. (72 divided by 4 = 18).

How long will you live?

The lump sum you'll need at the end of your career depends on the age you retire and your life expectancy. To find out more, check out the lead story in the December 2011 issue of Super Watch (look under documents and forms on the website). You might also like to take the 'How long will I live?' quiz (under planning tools).

1 Assumptions: 4% gross return less tax at 17.5%; 3% inflation. No adjustment for mortality. No allowance for any entitlement to New Zealand Superannuation.
2 Assumptions: Member contributions: 7.5%; Employer contributions: 10.184% (after tax); Net return after investment expenses and tax: 5% p.a.; Administration fee: $3 a month.


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PSS Trustees Limited is the issuer of the Police Superannuation Scheme (PSS). A copy of the PSS product disclosure statement is available under Documents and forms and at