Retirement savings targets could be overblown
Retirees’ spending tends to slow as they age which should challenge some assumptions about the need for an intimidatingly-large sized pot of retirement savings, according to the New Zealand Society of Actuaries.
Wednesday, February 5th 2025, 1:07PM
by Kim Savage
Retirees’ spending tends to slow as they age which should challenge some assumptions about the need for an intimidatingly-large sized pot of retirement savings, according to the New Zealand Society of Actuaries.
“We've looked at the numbers and said it looks like typically, a New Zealand household would reduce their spending in retirement by around 2% a year in real terms,” says Alison O’Connell, lead author of the society’s Retirement Income Interest Group’s latest research on spending in retirement.
“So what that means is that if general inflation is running at 2% a year, one would cancel the other out, and they'd be spending about the same in dollar terms as they go through.”
The latest retirement spending report from Massey University and Financial Advice New Zealand calculates that at the low end, a one-person “no frills” household in the provinces may need as little as $48,000 savings while at the higher end, a two-person household wanting “choices” in retirement may need as much as $1,142,000.
But a likely decrease in spending throughout retirement needs to be a consideration when planning and means people might not have to save quite as much as they think, says Alison O’Connell.
“If you're planning for how much you should save or how much you should drawdown, or you're an advisor and you're just assuming that you're spending on, carry on inflating, you're going to be putting yourself or your client under quite a bit of pressure to save more than they perhaps might need, if reducing spending in real terms is, you know, actually quite normal and acceptable,” she says.
“It's time to think about that assumption more carefully.”
That could mean industry and government reviewing and adjusting tools such as calculators and savings guidelines, to reflect the typical reduction in spending through retirement, says the society’s Retirement Income Interest Group.
RIIG also wants retirees to consider the impact of their spending reducing over time and think about whether they should draw down more from savings earlier in retirement, rather than saving it for later.
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