A million dollars is still a significant sum. But longer life expectancy, persistent inflation, and rising living costs have quietly changed the mathematics of retirement. Increasingly, the question is no longer whether you can accumulate $1 million – it’s whether that amount will fund the lifestyle you actually want.
Millionaires are no longer as rare as they once were. Rising house prices, KiwiSaver balances and decades of investment growth have dramatically increased overall household wealth. But wealth on paper and retirement income are not the same thing. What ultimately matters is not the size of your portfolio, but the income it can sustainably generate over what could be a 30-year retirement.
Many of these million-dollar balance sheets are tied up in property. A mortgage-free home worth $2 million may create the appearance of significant wealth, but it doesn’t directly generate income. For some households, downsizing can unlock that equity. Selling a $2m home and purchasing a $1m property, for example, could free up capital that can be invested to support retirement spending.
But even then, the outcome depends on how that capital translates into income – and whether that income is sufficient to meet ongoing living costs.
That distinction matters because retirement is ultimately funded by income, not assets. Massey University’s annual Retirement Expenditure Guidelines illustrate this well. Unlike theoretical budgets, the research is based on the actual spending patterns of retired New Zealanders.
Across almost every lifestyle category, retirees are spending more each week than they receive from New Zealand Super. For a couple living a more comfortable “choices” lifestyle in a metropolitan area, the gap is close to $1000 per week. Even those pursuing a more modest retirement often find NZ Super alone is not enough to cover everyday expenses.
Those weekly shortfalls translate into meaningful savings requirements. Massey’s estimates suggest that a metropolitan couple seeking a comfortable retirement requires just over $1 million in additional savings, on top of NZ Super.
More expensive than many people realise
Part of the answer is simple demographics.
Today’s retirees are living longer, healthier and more active lives. Retirement is no longer a decade of winding down. Someone retiring at 65 can reasonably expect another 25 to 30 years of life ahead. Funding three decades without employment income requires a very different level of preparation.
Then there is inflation.
Many people still think about retirement savings in nominal terms. A million dollars feels like a lot because it always has. But inflation steadily erodes purchasing power, while many of the costs retirees face are unavoidable.
The Massey research highlights this clearly. Core expenses such as food, insurance, household energy and property rates have been among the fastest-growing costs for retirees in recent years. Property rates, in particular, have risen significantly – well above general inflation in many regions – and remain a recurring cost that cannot easily be reduced.
At an average inflation rate of around 3%, the cost of living roughly doubles over 24 years. For someone retiring at 65, that means many everyday expenses could realistically double by their late 80s. A portfolio that feels more than adequate at the beginning of retirement may therefore need to support significantly higher living costs over time.
The real problem: chasing a number
One of the most common mistakes in retirement planning is focusing on a round number.
Whether it is $500,000, $1 million or even $2 million, the milestone itself becomes the goal. But retirement is not funded by a number – it is funded by future spending.
Someone planning to spend $50,000 per year will have very different needs from someone targeting $100,000. Housing, health, travel, longevity, investment returns and inflation all shape the outcome.
After a lifetime of hard work, most New Zealanders don’t simply want to retire – they want the freedom to enjoy retirement. The better question isn’t, “How much money do I want?” It’s, “What lifestyle do I want my savings to support?”
Another useful rule of thumb often used in retirement planning is the “4% rule” (based on research by US financial planner William Bengen). It suggests that someone can sustainably withdraw around 4% of their retirement savings each year, adjusted for inflation, without a high likelihood of running out of money over a 30-year retirement.
By that measure, a $1 million portfolio could initially provide around $40,000 of annual income. Combined with New Zealand Super, that may be sufficient for some retirees.
But for others – particularly couples seeking a more comfortable lifestyle in larger cities – it highlights a simple reality: a million dollars may not go as far as people expect.
What to focus on instead?
If there is one lesson from all of this, it is that retirement planning shouldn’t start with a dollar target.
It should start with a plan.
How much income will you need each year?
What sort of lifestyle do you want?
How long might your retirement last?
How much of your retirement income will come from New Zealand Super? How much will come from your KiwiSaver? And will you have other investments or savings to bridge any remaining gap?
Once those questions are answered, the savings target largely takes care of itself.
For some people, $500,000 may be enough. For others, even $2 million may not fully support the retirement they have in mind. The right number depends entirely on individual circumstances.
The encouraging news is that retirement outcomes remain highly influenced by decisions that are still within our control. Starting to save earlier, contributing more to your KiwiSaver, remaining invested over the long term, and reviewing your investment strategy as circumstances change, can all have a profound impact over several decades.
A million dollars remains a remarkable financial milestone, and for many New Zealanders it will provide a solid foundation.
But perhaps it is time we stopped treating it as the finish line.
The better question isn’t whether you’ve reached an arbitrary number.
It’s whether your savings can provide the income, flexibility and peace of mind to support the retirement you actually want.
Generate is a New Zealand-owned KiwiSaver and Managed Fund provider managing over $9 billion on behalf of more than 190,000 New Zealanders.
This article is intended for general information only and should not be considered financial advice. The views expressed are those of the author. All investments carry risk, and past performance is not indicative of future results.
To see Generate’s Financial Advice Provider Disclosure Statement or Product Disclosure Statement, go to www.generatewealth.co.nz/advertising-disclosures/. The issuer is Generate Investment Management Limited.