Less than $500k savings enough for most retirees

While the overall spending for retirees remains high, experts stress that most New Zealanders aiming for a comfortable standard of living will need additional income beyond the superannuation to secure financial stability in retirement.

The guidelines, produced by Te Kunenga ki Pūrehuroa Massey University’s Financial Education and Research (Fin-Ed) Centre and supported by Financial Advice New Zealand, highlight that the primary drivers of rising costs for retirees over the 12 months ending 30 June 2024 were housing, household utilities, transport and insurance. These increases have continued to put pressure on the retirement budgets of many Kiwis.

Although New Zealand's inflation rate has dropped over the past year, the cost of living remains a significant concern. For many retirees, one of the key issues in planning for the future is the fear of having insufficient money – a situation known as the "fear of running out" (FORO). This fear underscores the importance of planning sufficiently to ensure long-term financial security.

As part of its guidelines, the Fin-Ed Centre has categorised expenditure into two levels: ‘no frills’, reflecting a basic standard of living with minimal luxuries, and ‘choices’, which represents a more comfortable lifestyle. The guidelines provide useful data for pre-retirement New Zealanders, giving them insight into the actual expenditure of those already retired. The data takes into account different regions, comprising metropolitan and provincial areas, and covers both one-person and two-person households.

For a two-person ‘no frills’ household in a metropolitan area, the total weekly expenditure is $909.90, while a similar household in a provincial area spends $1,031.85. Households aiming for a ‘choices’ lifestyle in a metropolitan setting spend $1,739.85 per week, while those in provincial areas spend $1,210.18 per week. All of these figures significantly exceed the NZ Super payment of $799.18 after tax, highlighting that current retirees are supplementing their superannuation with additional income or savings.

These figures have risen compared to 2023, primarily due to inflation and changes in the data source, which now comes from the 2023 Household Economic Survey (HES). However, the report also reveals a slight reduction in the projected lump sum savings required to support retirement, suggesting that many households have adjusted their spending to mitigate the impact of inflation.

The projected lump sum required to support a two-person ‘no frills’ household in a metropolitan area is now estimated at $120,000, while a similar provincial household would need $252,000. For those seeking a ‘choices’ lifestyle, the required savings increase significantly, with metropolitan households needing $1,142,000, and provincial households needing $446,000.

As households continue to spend at levels in excess of NZ Superannuation, report author Associate Professor Claire Matthews says those approaching retirement need to plan for additional income streams to achieve these levels of expenditure.

Dr Matthews adds that while the focus for retirement is now moving to Generation X, it is also the time for Millennials to start planning ahead.

“The focus for retirement planning is undergoing a generational shift, with the first of Generation X now facing retirement in the foreseeable future. In 2029, the last of the Baby Boomer generation will reach the traditional retirement age of 65, when they will receive the New Zealand superannuation, with Gen X following in 2030. While Millennials have more time, the first of that cohort are now around 20 years from reaching age 65, making it an opportune moment for them to begin retirement planning.”

Chief Executive Officer of Financial Advice New Zealand Nick Hakes, emphasises the importance of seeking quality financial advice.

“In an ever-changing financial landscape, obtaining quality financial advice is crucial for ensuring long-term financial security in retirement. Professional advice can help retirees navigate the complexities of retirement planning and make informed decisions about their financial future.”

About the Retirement Expenditure Guidelines

Established in 2011, the New Zealand Fin-Ed Centre’s mission is to enhance the financial welfare of New Zealanders. The report’s findings are derived from data gathered from Statistics New Zealand’s triennial 2022/2023 Household Economic Survey. These guidelines do not represent recommended levels of expenditure, but reflect actual levels of expenditure by retired households.

Financial support to produce the Retirement Expenditure Guidelines report was provided by Financial Advice New Zealand.

Read the full 2024 Guidelines here.