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Superannuation shortfall widens – but it’s not all bad news

Many retirees now top up New Zealand Superannuation to maintain the lifestyle they want.

The gap between how much New Zealand Superannuation pensioners receive and how much they spend has widened significantly and many are working beyond the age of 65 to pay for the shortfall, according to the latest Retirement Expenditure Guidelines. 

The guidelines, which are produced annually by the Westpac Massey Fin-Ed Centre, 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. 

The report, which covers the 12 months to June 30, 2017, shows all households, including those groups with a ‘no frills’ lifestyle, now have a gap between what they’re spending and what they receive from New Zealand Superannuation. Report author, Dr Claire Matthews from the Massey Business School, says this is not necessarily cause for concern.

“The gap has at least doubled for most households, which is a significant change from previous reports,” she says. “But, to some extent, this reflects households being better prepared for retirement, allowing them to top up their superannuation payments to give them the lifestyle they want.”

Retirement Expenditure Guidelines author Dr Claire Matthews from the Massey Business School.

Working beyond 65

For the first time, the Retirement Expenditure Guidelines include information about income for retired households, to complement information about how much they’re spending. It shows around half of retirees living a ‘choices’ lifestyle are still working – at least part-time – while the rest are accessing savings or investment income.

“It seems that reaching eligibility for NZ Super doesn’t mean stopping working for many,” Dr Matthews says. “While it can mean a change in working patterns and styles, semi-retirement offers people options for topping up their superannuation and saving more for when they do stop working completely.”

Westpac NZ’s head of private wealth management, Katie Christoffersen, says it’s important for people to work out early how much they will need to have saved or invested to give them the retirement they want.

“Once they have that ball-park figure in mind, they can start to think about how they will afford it,” she says. “KiwiSaver is likely to help many people, especially if they increase their contributions to 8 per cent of their pay, and have some additional investments and a savings account as well.

“For many people though, working into retirement will be a reality if they wish to continue to have the lifestyle they want. If you wait until you’re only a few years off retirement age, it may be too late to have a choices retirement and people may find they have to keep working. Starting at any point is better than not starting at all.”

Transport, recreation and health spending up

The report found the most significant increases in expenditure were on transport, recreation and health.

“Looking at transport, the increases mostly related to the purchase of vehicles and passenger transport services,” Dr Matthews says. “When you couple this with greater expenditure on recreation, it seems some groups at least are spending more on things they enjoy doing. You don’t buy holidays and cars if money is very tight.

“Rising health costs reflect the fact that New Zealanders are living longer and that medical products and equipment are becoming more expensive. There may also be more retirees choosing to pay for elective procedures because they have the means to do so.”

Mrs Christoffersen says the only way to have options in retirement is to start saving now.

Download the full Retirement Expenditure Guidelines report.

About the Retirement Expenditure Guidelines

The Westpac Massey Fin-Ed Centre, or Financial Education and Research Centre, is a joint initiative by Westpac and Massey University that aims to improve the financial wellbeing of New Zealanders.

Workplace Savings NZ provides financial support to produce the Retirement Expenditure Guidelines, which are based on figures from Statistics New Zealand’s triennial Household Economic Survey, adjusted for the effect of inflation.

It is important to note that the guidelines do not represent recommended levels of expenditure, but reflect actual levels of expenditure by retired households.

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