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Source: Massey University

The latest Retirement Expenditure Guidelines calculate a two-person household living in the city would need to have saved $809,000 to fund a ‘choices’ lifestyle, while a couple living in the provinces would need to have saved $511,000.

The latest Retirement Expenditure Guidelines produced by Massey’s NZ Fin-Ed Centre suggest most Kiwis will need to make provision for supplementary retirement income, in addition to what New Zealand Superannuation can provide.

The guidelines, which are produced annually, calculate what retirees currently spend to maintain either a ‘no frills’ retirement, or a more fulfilling ‘choices’ lifestyle that includes some luxuries. Costs are calculated for one and two-person households in both metropolitan (Auckland, Wellington and Christchurch) and provincial areas.

Financial support to produce the guidelines was provided by Financial Advice New Zealand and financial adviser firm Consilium.

The guidelines calculate a two-person household living in the city would need to have saved $809,000 to fund a ‘choices’ lifestyle, while a couple living in the provinces would need to have saved $511,000. The lump sums required for a ‘choices lifestyle’ for a one-person household are $600,000 and $688,000 for metropolitan and provincial areas respectively.

New Zealand Superannuation increased by 3.09 per cent in April 2021 but fell short of covering all of the expenses for most retirees.

Only two-person provincial households living a ‘no frills’ lifestyle come close to being funded by New Zealand Superannuation, however these households would still require savings of $75,000. A metropolitan two-person household with a ‘no frills’ lifestyle would require savings of $195,000 at retirement to supplement their superannuation.

The key inflationary drivers for superannuants for the twelve months ending 30 June 2021 were transport, housing and household utilities.

Report author, Associate Professor Claire Matthews from the Massey Business School, says people need to proactively prepare for retirement, and there are several matters to consider.

“Retirement represents a substantial life change for most. The financial aspect of retirement is one of the most important factors to consider, but there are other aspects to think about, many of which will directly or indirectly impact your financial planning. To avoid sleepwalking into retirement, people need to be proactive about their preparation. Factors to consider include budgeting, life insurance, health needs, living arrangements, wills, enduring powers of attorney, family trusts and retirement activities.”

Dr Matthews says it’s never too early to start planning for retirement.

“For the baby boomers that have not yet retired, there is some urgency to this preparation as at most they now have eight years before reaching the age of 65, the age of eligibility for New Zealand Superannuation and widely seen as the retirement age. Retirement now looms on the horizon for Generation X, with the first of these reaching 65 in less than 10 years. While Millennials have at least 25 years before reaching retirement age, it is never too early to start thinking about retirement.

“Retirement preparation could easily become overwhelming because of the number of things that need to be considered, but there are many sources of information and assistance, including financial advisers and the Sorted website,” Dr Matthews adds.

Financial Advice Chief Executive Katrina Shanks welcomed the report, saying it was a further timely reminder about the need for people to plan for their retirement.

“We need to drill home to people that they must start thinking seriously about saving for their retirement from an early age or they will struggle to live the lifestyle they want to once they stop work, and these guidelines clearly show what people need to aim for.”

Scott Alman, Managing Director Consilium and co-sponsor of the New Zealand Retirement Expenditure Guidelines says, “We are really pleased to co-sponsor this report which helps the financial literacy of New Zealanders. It provides evidence to pre-retirees about their retirement income needs. It helps them be better informed about what sort of lump sum they will need to accumulate to fill the retirement savings gap between their NZ Super and private savings.”

About the Retirement Expenditure Guidelines

NZ Fin-Ed Centre, or New Zealand Financial Education and Research Centre was set up in 2011 with an aim 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.

Read the full report here.