The gap between NZ Super and cost of living continues to grow, guidelines show

NZ Super continues to not meet the financial needs of the retired population, and retirees will have to supplement their budgets regardless of whether they are seeking a no-frills lifestyle or one where they have more choices.

That’s the main finding of the latest Retirement Expenditure Guidelines, which was launched on World Financial Planning Day.

The guidelines have been produced by Massey’s NZ Fin-Ed Centre and co-sponsored by Consilium and Financial Advice New Zealand.

They show the importance of saving and investing for your retirement. Analysis of expenditure for even a basic standard of living in retirement shows a gap between NZ Super and weekly expenditure costs.

The recent increases in inflation have shown that retirement planning is not static, and people need to review their financial plan to ensure they are not disappointed in retirement.

The guidelines use two levels of expenditure: No Frills, which is a basic standard of living that includes few, if any, luxuries, and Choices, which is a more comfortable standard of living, which includes some luxuries or treats. 

They show a two-person household in a main city in 2023 would need to have saved $831,000 ($755,000 in 2022) to fund a Choices lifestyle, while a couple living in the provinces would need to have saved $539,000 ($480,000).

The lump sums required for a Choices lifestyle for a one-person household is $610,000 ($561,000) and $697,000 ($658,000) for metropolitan and provincial areas respectively.

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 $120,000 ($77,000 in 2022).

A metropolitan two-person household with a No Frills lifestyle would require $235,000 ($191,000 in 2022) savings at retirement in addition to NZ Super.

Big increases in the cost of food were impacting retirees because, as a percentage, they spend between 12% and 22% of their income on food, and the increase in the cost of food was 12.3% - more than twice the CPI of 6%. In addition to this, the biggest expenditure category for retirees is housing and household utilities (except for Choices provincial one-person households) of between 17% and 31% of total expenditure. This class of expenditure represented an average of 8.9% of the total increase in expenditure – well above the rate of inflation.

Consilium Managing Director Scott Alman spent several decades as a financial adviser helping clients get ready for a choices lifestyle. He says the key is to have a plan, be disciplined and stick to it.

“It starts with knowing where you want to be, how you want to spend your money, and the choices you want to give yourself. Once you identify your goals you can then budget and manage your cashflow to invest regularly. This report assumes that you invest rather than save and that’s an important difference in growing wealth.”

Seeking out professional financial advice should be something everyone considers.

“Financial advice is especially important when preparing for a comfortable retirement. It can take some of the key findings in this report, personalise them and show pre-retirees how to put these insights into action. And perhaps most importantly, can help keep the plan on track through the inevitable ups and downs of markets, and life in general.”

Financial Advice Chief Executive Katrina Shanks says the report is a further reminder about the need to be actively involved in your retirement planning 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.”

“Most Kiwis put 3% into KiwiSaver to maximise the employer contribution, but they could invest more – 4%, 6%, 8% and 10% are also options. The impact of those rates on the portfolio value at age 65 are significant.”

About the Retirement Expenditure Guidelines

NZ Fin-Ed Centre, or New Zealand Financial Education and Research Centre, was set up in 2011 as a joint initiative with Westpac New Zealand and Massey University that aims 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.

Download the Retirement Expenditure Guidelines