Katrina Shanks is chief executive of Financial Advice NZ.
OPINION: A report by Te Ara Ahunga Ora Retirement Commission estimates around 40% of people aged 65 and over have virtually no other income besides the NZ Superannuation payments of $496.37 a week for a single person living alone and $763.64 for a couple.
A further 20% have only a little more income to live on, and even with NZ Super, close to one in three people don’t think they will have enough for retirement unless they continue working past 65.
They are concerning statistics, and you don’t have to look far behind them to see real-life examples of how people are being affected.
A recent media report quoted one pensioner saying he had to sometimes sit in the dark to keep his power bill down. Another said she survived mostly on two-minute noodles because she didn’t have enough money for much else. Another, living in a city where water is metered, said she didn’t flush her toilet as often as she normally would just to save on that bill. That saved her $10 to $12 a month.
They’re appalling and heartbreaking stories and there’s set to be more of them unless attitudes towards saving for retirement change.
Stats NZ research shows last year there were about 840,000 people aged 65 years or older living in New Zealand, and that is increasing by about 80 a day and is likely to reach 1 million by 2028, 1.3 million by 2040, and 1.5 million by the 2050s.
It’s clear from all this the importance of saving and investing for your retirement has never been greater, and this is further highlighted by a blunt report released this week.
The latest Retirement Expenditure Guidelines by Massey University’s Fin-Ed Centre, supported by Financial Advice New Zealand and fund and KiwiSaver manager Consilium, show for even a basic standard of living in retirement there is a gap between NZ Super and weekly expenditure costs.
Simply put, retirement households are spending at levels in excess of NZ Super – thanks to the cost of living – and will have to supplement their budgets with other income, irrespective of what lifestyle they choose.
The guidelines used two levels of expenditure:
- No frills, which is a basic standard of living that includes few, if any, luxuries.
- Choices, which is a more comfortable standard of living and includes some luxuries or treats.
It then looks at how one-person and two-person households in metro and provincial settings will cope. The results will surprise many.
They show a two-person household would need to have saved $831,000 to fund a choices lifestyle in a main city in 2023. They were the group most in deficit, with their super of $763 a whopping $902 short of their weekly expenditure of $1665.
A couple living in the provinces on a choices lifestyle would need to have saved $539,000. It’s worse for one-person households. They would need to have a lump sum of $697,000 in the city and $610,000 in the provinces.
MONIQUE FORD / STUFF
Liz Koh has launched an online business to teach retirees the skills to manage their retirement nest eggs so they last for the rest of their lives.
Only two-person households living a no frills lifestyle in the provinces come close to being funded by NZ Super, though they would still need savings of $120,000. Their spend of $689 a week was $193 short after super of $$496 was taken into account.
A two-person household living a no frills lifestyle in the city would require $235,000 savings at retirement in addition to NZ Super.
For people on fixed incomes, these are big increases.
The report says big increases in the cost of food are impacting retirees because they spend between 12% and 22% of their income on food.
The main cost drivers for retirees across all household groups over the past year were food (12.3%), recreation and culture (7.3%), insurance (6.5%), and housing and household utilities (6%).
The guidelines also give an idea of how saving early in life for retirement can make a difference, by calculating the amount each group would need to save each week to achieve the lump sum that would give them the lifestyle they choose.
The lowest-expenditure no frills couple living in the provinces (with a deficit of $193 per week) would need to save $243 a week if they started saving at age 50, and just $75 if they started saving at 25 to reach their $120,000 target.
At the other end of the scale, two people wishing to live a choices lifestyle in the city would need to save $1057 a week if they started saving at age 50 to achieve their target of $831,000, but just $349 if they started at 25.
It’s clear from these calculations that unless we save for retirement, the retirement lifestyles many of us envisage will not happen.
The statistics show that many people are living on just their superannuation and do not have the savings this report recommends, and in many cases have limited savings. There is no doubt these retirees may struggle when something unexpected happens and the impact of inflation has a significant impact on their lives.
This report is a further reminder about the need to be actively involved in your retirement planning as early as possible, because the goal posts are constantly moving.
It’s about planning for your retirement and understanding the lifestyle you would like at retirement and working towards accumulating these assets because NZ Superannuation will not fund a decent lifestyle.
Most of us put 3% into KiwiSaver to maximise the employer contribution, but we could be doing a lot more – 4%, 6%, 8% and 10% are also options. The impact of those rates on the portfolio value at age 65 is significant.
I actively review my financial goals and pivot to stay on track on a regular basis. This may mean I can’t do everything I would like to, do but it does mean I have peace of mind for the future. As my financial adviser would say – begin planning and preparing for your future now.
