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The number you need for a good retirement

Tuesday, 23 June 2026

Saving 10% of everything you earn from the age of 22 ias likely to give a median earner income replacement until the age of 90, subject to investment return of 4.5%, says Martin Hawes.
Saving 10% of everything you earn from the age of 22 ias likely to give a median earner income replacement until the age of 90, subject to investment return of 4.5%, says Martin Hawes.

Martin Hawes is a financial writer and presenter, and has written 25 personal finance books. He writes a weekly column.

OPINION: An interesting paper hit my computer last week. It came from the New Zealand Society of Actuaries (NZSA) who have a group called the Retirement Income Interest Group (RIIG).

This group researches retirement income issues; I have mentioned them previously in relation to draw down rates – i.e. the amount that you can safely withdraw from a portfolio and have the money last as long as you do.

This new paper was on the amount that we should be contributing to KiwiSaver to give us income replacement. Retirement savings are generally aimed at smoothing out lifetime income so that we replace our income from work with about the same income from our investments.

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This is an important piece of work because it tells us how much we should be saving. We need this information for setting KiwiSaver rates, but it is also important for the self-employed who get hardly any incentive from KiwiSaver but still need an indication for how much they need to save.

Had you asked me what the contribution rate for KiwiSaver ought to be in a perfect world I would have replied 6% from the employee plus 6% from the employer. I would have said that because Australia’s rate is 12% and I would have assumed that they had done some numbers.

However, I would have been wrong; the RIIG come up with 5% contribution from both employers and employees for a total of 10%.

It is interesting that they have come up with that number. Throughout my life in personal finance I have read in books and heard people say that if you save 10% of everything that you earn from the time you start in employment until your retirement party, you will be set for retirement. I had always thought that the 10% figure was plucked out of the air or used only because it made for an easy calculation.

However, this 10% of everything you earn that is found in books and articles is the same as the RIIG’s 5% plus 5% going into KiwiSaver from age 22; perhaps the people who came up with 10% had also done their numbers.

It is good to put accurate numbers on things – and to have confidence that a certain behaviour (eg saving 10% of income) will likely give a good result, writes Martin Hawes.
It is good to put accurate numbers on things – and to have confidence that a certain behaviour (eg saving 10% of income) will likely give a good result, writes Martin Hawes.

Saving for retirement aims to replace salary and wages with income from savings and investments. Nirvana is to neither under-save nor over-save - but to save the right amount.

The RIIG finds that 5% plus 5% is right for the median earner. A savings rate of 5% plus 5% with investment returns of 4.5% after tax and fees will give that median earner income replacement until age 90.

For a minimum wage earner, 5% plus 5% would probably be too much. This person would end up in retirement with more income than they had while working. A contribution rate of 5% would be very difficult for the minimum wage earner and mean that lifetime income was not smooth – income would be low while working, but higher when retired.

High income earners have the opposite problem. To smooth their lifetime income, they would need to contribute more than 5% plus 5%. However, an 80% replacement rate might be acceptable to these people – ie in retirement they would have 80% of their pre-retirement income and that could be sufficient.

And so, the RIIG settles on recommending a contribution rate of 5% plus 5% because it is suitable for most people. At the moment our contribution rate is 3.5% plus 3.5% and scheduled to go to 4% plus 4% in 2028. That would mean we would need to raise the rate a bit further but not as far as Australia’s 12%.

This study is extremely useful. It gives data to show that if you want a decent retirement, you ought to be saving at total of about 10% of your income. You need to do this from age 22 and get an investment return of 4.5%. None of that is especially difficult except for the lower earners who would surely find a sacrifice of 5% of wages very difficult indeed.

Although the RIIG does not mention them, it also gives guidance to the self-employed (they are the most forgotten group in personal finance, even though there are a lot of them). The self-employed tend to earn quite well but there is little incentive for them to save. Their income is often erratic and their finances difficult to manage. It is not easy for the self-employed to make regular contributions into retirement savings.

I like getting these reports from actuaries. It is good to put accurate numbers on things – and to have confidence that a certain behaviour (eg saving 10% of income) will likely give a good result.

Martin Hawes is a financial writer and presenter. He is not a financial adviser, and the information and opinions here should not be taken as financial advice.