Retirement planning must take heed of economic headwinds
Retirees’ spending increased in 2024 as like the rest of the population they faced hikes in housing, utilities, transport and the cost of insurance.
Wednesday, January 29th 2025, 9:03AM
by Kim Savage
The latest retirement expenditure figures from Massey University’s Fin-Ed and Financial Advice New Zealand shows the effect of inflation on expenditure for each of the household groups looked at in the research was in the range of 1.80% to 3.46%, with only two household groups having an effective inflation rate above the CPI rate of 3.30% for the same period.
“As households continue to spend at levels in excess of NZ Superannuation, New Zealanders need to consider the changing economic environment to determine the savings they need to achieve their retirement objectives,” says Massey University Associate Professor Claire Matthews.
The report shows weekly expenditure for a one-person “no frills” household in the provinces saw the largest increase of 3.46% to $564.25, while city dwelling two-person “no frills” households also outpaced inflation, at 3.34% to $909.90.
Households generally continue to spend more than they receive in New Zealand Super, reflecting their ability to fund their lifestyle with other income sources or savings, the report outlines.
“The data and insights from the Guidelines equip advisers with information on spending patterns and the financial needs of retired New Zealanders, to assist with providing tailored professional advice that addresses longevity risk, optimises savings, and ensures a comfortable retirement.”
The data and accompanying guidelines offer valuable insights for advisors, says Financial Advice New Zealand chief executive Nick Hakes.
“Our members play a critical role in helping individuals navigate these complexities.
“The data and insights from the Guidelines equip advisers with information on spending patterns and the financial needs of retired New Zealanders, to assist with providing tailored professional advice that addresses longevity risk, optimises savings, and ensures a comfortable retirement.”
The challenge of answering the question: how much to save?
The Massey University research also takes a closer look at life expectancy and how it factors into retirement planning as it tries to answer the key question: what do I need to have in savings to live the life I want to in retirement?
It identifies ‘‘fear of running out’ (FORO) as a potential cause of over-saving, which can reduce a retiree’s quality of life, or in retirement, it can cause under-spending even when sufficient funds are available.
The report uses age 90 to calculate lump sums required for different households in retirement, but notes life expectancy is influenced by genetics, lifestyle, ethnicity, gender and socioeconomic factors.
At the low end, a one-person “no frills” household in the provinces may need as little as $48,000 while at the higher end, a two-person household wanting “choices” in retirement may need as much as $1,142,000.
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