Author Katrina Shanks, CEO Financial Advice NZ Article originally published in

Retirement has become something of a conversation piece of late, firstly following calls for an urgent review of the retirement village sector, and then a report by Treasury around housing costs for superannuitants.

The most widely discussed issues the Retirement Commissioner found in its 3254 submissions were operators taking ages to resell properties after a death, no shared capital gains, and weekly fees continuing after death or hospital admission.

And while there are clearly some serious issues there, unfortunately it’s not much better for some not living in village life.

Analysis by Treasury shows superannuitants still paying rent are much more likely to be spending 40% or more of their NZ Super income on housing.

The picture is worse for those still paying mortgages, with 80% spending more than 40% of Super on housing costs, and more than half spending more than 80%.

Long-term trends suggest more older householders are likely to be renters in the future. These are concerning statistics that are compounded by the gap in superannuation income and retiree expenditure.

The latest Retirement Expenditure Guidelines clearly highlights the gap between superannuation income and expenditure when it comes to affording the lifestyle they want.

Basically, retirement households are continuing to spend at levels in excess of NZ Super and will have to supplement their budgets, irrespective of whether they are seeking a no-frills lifestyle or one where they have more choices.

The guidelines are produced each year by Massey’s Financial Education and Research Centre, supported by Financial Advice New Zealand and Consilium.

They looked at two levels of expenditure for eight retired household groups.

The levels of expenditure are “no frills”, which reflect a basic standard of living that includes few, if any, luxuries, and “choices”, which represents a more comfortable standard of living, including some luxuries or treats.

The household groups are one-person and two-person households in metro and provincial settings.

The guidelines found that in the past year, total expenditure needed by retired people to maintain either a no frills or a choices lifestyle in either metro or provincial areas increased by an average of 7.6%.

Costs for a two-person “no frills” household living in a city jumped by $66 per week, and for a “choices” household by $107, the biggest increase of all groups.

The smallest was $45 for one person on a no frills budget living in the provinces. This was the only group where the increase was below the rate of inflation.

For people on fixed incomes, these are big increases.

The report said increases in the cost of transport, housing and household utilities, and food were the main culprits for the increases.

While CPI was 7.3% in the June quarter, the biggest increases for retirees were 14.05% for transport, 9.1% for housing and household utilities, and 6.55% for food.

The report then compared the difference between the total expenditure of each household group and the rate of NZ Superannuation as at April 1 this year, and what it found will be a shock to pre-retirees.

None of the groups, not even the one with the lowest expenditure – the one-person provincial household spending $650 per week – got anywhere near having those costs covered. With super of $462 a week, people in that group were $187 short.

Those most in deficit were two-person choices households living in a city. Their super of $712 was a whopping $865 short of their weekly expenditure of $1578.

The guidelines then calculated the lump sum each group would need at retirement to fund spending over and above NZ Superannuation, assuming no other income, and the weekly savings required to achieve that sum.

They found our lowest-expenditure no frills retiree living in the provinces (with a deficit of $187 per week) would need to have a lump sum of $163,000 upon retirement to achieve that lifestyle. They would have to save $198 a week if they started saving at age 50, but just $60 if they started saving at 25.

At the other end of the scale, two people wishing to live a choices lifestyle in the city (remember, a more comfortable standard of living, including some luxuries or treats) would need a lump sum of $755,000 upon retirement to overcome their weekly deficit of $865 per week.

To achieve that they would have to save a whopping $954 a week if they started at age 50, and $315 if they started at 25.

It’s clear from these numbers that starting saving early is the real key to saving for retirement.

To put it bluntly, you need to put a plan into action today, otherwise you will struggle to live the lifestyle you want once you stop work.

We have a plan for our family which we chip away at every week. I wish I had committed to the plan at an earlier age – it would be much easier now.

As my financial adviser would say: begin the journey of financial planning now. It’s never too late to make a difference to your financial wellbeing.