Massey University’s Financial Education and Research Centre has found that a ‘no-frills’ retirement will cost retirees less than $500,000 — but a retirement with frills attached has a price tag closer to the $1 million mark.
The Centre has this week released its latest New Zealand Retirement Expenditure Guidelines report, the thirteenth edition in the series which began in 2012.
The reports include findings around the current costs of retirement for retirees for each June-year, with the 2024 report using data from Statistics NZ’s triennial 2022/2023 Household Economic Survey.
The reports paint a financial picture for pre-retirees of what to expect in actual retirement expenditure in a range of different situations.
The latest report revealed that retirees were still spending at levels that exceeded NZ Super during the 12 months to June 2024 and insurance, housing, household utilities, transport and insurance were the primary drivers of rising costs.
In the June-2024 year, insurance costs were up 14%, household utilities and housing costs were up 4.4% and transport costs were up 3.5% for retirees.
These rising costs mean many retirees are in a position of not being able to get by on NZ Super alone and are having to supplement their superannuation with additional income or savings.
“Many New Zealanders hope for a higher standard of living in retirement than what NZ Super alone can provide,” report author Associate Professor Claire Matthews said.
“As a result, it’s crucial to recognise that the landscape of retirement planning is always changing. Regularly reassessing your retirement plans to account for external factors is essential.”
The latest findings mean people need to think about having additional income beyond superannuation in order to secure financial stability in retirement.
The Centre’s report found that many retirees are worried that they don’t have sufficient funds for retirement and struggle with the ‘fear of running out’ (FORO).
Do you want frills with that?
The Financial Education and Research Centre categorises retirement expenditure into two levels.
The first level is a ‘no frills’ one, and represents a basic standard of living that has minimal luxuries while the second retirement expenditure level includes more ‘choices’ and represents a more comfortable lifestyle.
These ‘no frills’ and ‘choices’ levels are impacted differently depending on if retirees are living in metropolitan and provincial areas.
The Centre found in the year ending June 2024, the total weekly expenditure of a two-person ‘no frills’ household in a metropolitan area to be $909.90 compared to a weekly $1,031.85 in a provincial area for a similar household.
Households that want a ‘choices’ lifestyle in a metropolitan setting can expect to spend $1,739.85 per week compared to $1,210.18 per week for those in provincial areas.
The report noted that all of these figures “significantly exceed” weekly NZ Super payments which range depending on your tax rate and relationship status.
The Centre said 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 on top of NZ Super.
The required savings increase even higher for people wanting a ‘choices’ lifestyle, with the report finding that metropolitan households will need a lump sum of $1,142,000, and provincial households will need $446,000 on top of NZ Super.
Retirement Commissioner Jane Wrightson said in September last year that New Zealanders need “definitely six figures” in the bank to get them through retirement and seven figures if they want to have a “very comfortable” lifestyle in retirement.
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