Report reveals how much savings retirees require to live a "no-frill" or "choices" lifestyle
NZ Super is not enough to support retirement households regardless of whether they are seeking a “no-frills” lifestyle or one where they have more choices, according to the latest Retirement Expenditure Guidelines, launched at Financial Advice New Zealand’s annual conference in Christchurch.
Read more: Will NZ Super be enough for older Kiwis paying housing costs?
The guidelines, produced by Massey’s NZ Fin-Ed Centre and backed by Financial Advice New Zealand and fund and KiwiSaver manager, Consilium, showed that without preparing for spending beyond NZ Super, many New Zealanders will be disappointed in their retirement.
Inflation has pushed up household excess expenditure, with retirees making up the shortfall from savings. It 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.
According to Financial Advice New Zealand, a two-person household in the main cities would need to have stashed away $755,000 to support a “choices” lifestyle, while a couple living in the provinces would need to have saved $480,000. For a one-person household on a “choices” lifestyle, they would require lump sums of $561,000 and $658,000 for metropolitan and provincial areas, respectively.
Read next: Kiwis heading into retirement ‘buckling’ under rising debt
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, meanwhile, would need to have saved $191,000 at retirement in addition to NZ Super.
Hitting retirees hard in particular are the sharp increases in the costs of transport, housing and household utilities, and food - 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. With increases in the Super rate only at 5.55% (based on inflation through Dec 31, 2021), retirees must make up the difference from savings.
Scott Alman, Consilium managing director, said people need to plan carefully for their retirement and stay focused on it as the cost-of-living climbs.
“It starts with budgeting and spending carefully and flows from there,” Alman said. “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.”
Everyone should also consider seeking professional financial advice.
“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,” Alman said.
Katrina Shanks, Financial Advice chief executive, said the report highlights the importance of planning for 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,” Shanks said. “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.”
Shanks dished out some tips on how to plan for retirement.
“People nearing retirement can use the levels of lump sums required to start budgeting now to increase savings and investments,” she said. “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. While 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.”
In related news, Financial Advice New Zealand elected a new board director at its recent AGM. Paul Sewell joined the board as director for financial planning/investment for a period of three years. He replaced Stephen O’Connor, who is stepping down after four years.
Sewell is the director and certified financial planner at Financial Advice Hawkes Bay. He has 25 years of financial advice experience across risk management, financial, and investment planning. He is also a founding member of Financial Advice New Zealand and former chairman of the member advisory committee for Financial Advice New Zealand.
