If you’re planning a retirement in one of New Zealand’s big cities, with a few extra luxuries or treats, you are likely to need to have saved $415,500 – and for your partner to have done the same.
That’s one of the findings from the latest Massey University NZ Fin-Ed Centre New Zealand Retirement Expenditure Guidelines.
The guidelines are updated each year, giving an overview of how much it costs to have a “no frills”, bare-bones retirement, and a “choices” one, with a few extras.
It found that all of its household types were now spending more than they would receive in the pension.
A one-person household in a metropolitan area on a no-frills retirement would spend $363.32 more a week than they received in the pension. The same person in a provincial centre would be short $226.60.
A couple in a metropolitan area with a no-frills lifestyle would be short $269.80 a week, and $137.60 in a provincial area.
The researchers said that indicated that retirees were relying on other sources of income to get by.
The projected lump sum savings needed to make up the difference for a two-person “no frills” household in an urban setting was $235,000, and $120,000 was needed for a similar household in a rural area. A metropolitan two-person “choices” household would require $831,000, while their provincial counterparts would need $539,000.
A $415,500 shortfall would require saving of $529 a week from age 50.
Associate professor Claire Matthews, who produced the report, said while the lump sums sounded intimidating, there were ways to reduce them such as working longer, picking up some part-time work in retirement, and considering investing in more growth assets to improve returns, if it suited a person’s risk profile.
She said inflation remained an issue for retirees, although the pressure was coming from different areas this year.
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“Transport wasn’t so key this year and insurance became more important. Food tends to be important every year, partly because simply it’s a large expenditure item.”
The report estimated that 12% to 22% of retirees’ spending was on food. Insurance was 6% to 9%. The biggest expenditure class for most households was housing and household utilities.
She said the gap between what people had to spend and what they received in their pension was growing. But all but two groups experienced their costs rising at a slower rate than general inflation, because of the make-up of their spending.
Matthews said the data was based on spending patterns in the Household Economic Survey (HES) in 2019, adjusted for inflation each year. The results of the latest update were delayed by the pandemic.
She said, when the latest HES update came out, it could show that spending had not increased as much as she had calculated, because people might cut back if they did not have the money available.
“I suspect while it may have increased, it won’t have increased as much as inflation and we will have seen a reduction, reassessment of expenditure.”
She said KiwiSaver data seemed to show that many people might not be on track for retirement, if they wanted the standard of living current retirees are experiencing.
She said it should be made easier for people to increase their KiwiSaver contribution rates in small steps, so they could bump up their saving rate by 0.5 percentage points when they received a pay rise, for example.
“Most New Zealanders aspire to a better standard of living in retirement than can be supported by NZ Super alone, so it’s important to remember that the context in which retirement planning takes place is not static. Regularly reviewing your retirement plans in line with external factors is a must.”
