All retirees need more than just NZ Super, guidelines show

Retirement households continue to spend at levels in excess of NZ Super and will have to supplement their budgets regardless of whether they are seeking a no-frills lifestyle or one where they have more choices.

That’s one of the main findings of the latest Retirement Expenditure Guidelines, which were launched today at Financial Advice New Zealand’s annual conference in Christchurch.

The guidelines have been produced by Massey’s NZ Fin-Ed Centre and are supported by Financial Advice New Zealand and fund and KiwiSaver manager, Consilium.

The guidelines show that without preparing for spending beyond NZ Super many New Zealanders will be disappointed in their retirement.

Household excess expenditure has increased since last year due to inflation, with retirees making up the shortfall from savings. Inflation is especially concerning for those in or near retirement as it erodes the purchasing power of income and reduces the value of fixed-income investments that many retirees favour.

A two-person household in the main cities in 2022 would need to have saved $755,000 to fund a ‘choices’ lifestyle, while a couple living in the provinces would need to have saved $480,000. The lump sums required for a ‘choices’ lifestyle for a one-person household are $561,000 and $658,000 for metropolitan and provincial areas respectively.

Only two-person provincial households living a ‘no frills’ lifestyle come close to being funded by NZ Super, though they would still need savings of $77,000. A metropolitan two-person household with a ‘no frills’ lifestyle would require $191,000 savings at retirement in addition to NZ Super.

Big increases in the cost of transport, housing and household utilities, and food in particular are hitting retirees hard because, as a percentage, they spend more than the average Kiwi in these areas. While CPI was 7.3% in the June quarter, the biggest increased costs for retirees were 14.05% for transport, 9.1% for housing and household utilities and 6.55% for food. Because increases in the Super rate was only 5.55% (based on inflation through Dec 31st 2021), retirees must make up the difference from savings.

Consilium Managing Director Scott Alman says as the cost of living climbs it’s becoming very clear that people need to plan carefully for their retirement and stay focused on it.

“It starts with budgeting and spending carefully and flows from there. Set a target, put a plan in place and chip away with regular savings to ensure there is a good nest egg for when you retire.“ The golden rule is it’s never too early to start planning for retirement.”

Seeking out professional financial advice should be something everyone considers.

“Financial advice can be as simple as setting up a plan for paying off a mortgage early, identifying retirement needs, and then choosing an investment and KiwiSaver plan that aligns with their goals. The everyday needs of everyday people.”

Financial Advice Chief Executive Katrina Shanks says the report is a further reminder about the need for everyone, even those who think they are going to be comfortable, to plan for their retirement.

“We need people to realise it’s essential to start thinking seriously about their retirement and what sort of lifestyle they want to lead when they get there.

“Unless they do this from an early age, and put a plan into action, they will struggle to live the lifestyle they want to once they stop work. These guidelines clearly show what people need to aim for.

“People nearing retirement can use the levels of lump sums required to start budgeting now to increase savings and investments. They can also look at ways of maintaining an income for longer while they save, including working past 65 or at least working part time.

“Other ideas are to look at how best to invest to maintain purchasing power. If you’re planning for a long retirement, generally speaking you can take more risk because you have time for markets to recover. Whilst portfolios may be labeled growth, balanced or conservative, it is helpful to understand the limitations of conservative investments in outpacing inflation.

“In retirement, having discussions regarding balanced portfolios and when to liquidate certain parts i.e growth funds, property market or down-sizing property to access capital is a really useful move. Just because people are in retirement doesn’t mean all their investments have to be conservative.

About the Retirement Expenditure Guidelines

NZ Fin-Ed Centre, or New Zealand Financial Education and Research Centre, was set up in 2011 as a joint initiative with Westpac New Zealand and Massey University that aims to improve the financial wellbeing of New Zealanders. The report’s findings, are based on figures from Statistics New Zealand’s triennial Household Economic Survey, adjusted for the effect of inflation. It is important to note the guidelines do not represent recommended levels of expenditure, but reflect actual levels of expenditure by retired households.