A research paper published in August 2023 and funded by Te Ara Ahunga Ora Retirement Commission, looked at where New Zealanders in retirement are spending their income.
The question posed in the study was “what level of income is required to sustain an acceptable standard of living in retirement?”. We could have a lot of discussion around what the Government means by the words “sustain” and “acceptable”. We find our clients who have targeted retirement savings early have retirement incomes well above the numbers shown below. This results in a good lifestyle in retirement and have more flexibility with their expenditure.
New Zealand Superannuation currently provides $1,527.28 per fortnight for a couple ($39,709 per annum) and $992.74 per fortnight if living alone ($25,811 per annum). This income CPI adjusted each year in April.
Summary of Motu economic & public policy research paper
The full paper from Motu can be downloaded here.
In the 2018/19 period, it was observed that households led by retirees had an average annual expenditure of $55,700. Within this spending, 13% was allocated to groceries, 19% to housing, 14% to essential items like household utilities, communications, and insurance, leaving the remaining 54% for discretionary expenses. Notably, the expenditure patterns of these households varied significantly based on demographic factors and income levels.
For instance, individual retirees living alone had an average annual expenditure of $30,700, while households consisting only of couples had a higher expenditure of $65,100. As retiree households aged, their spending generally decreased, particularly in discretionary categories like clothing, transportation, recreation, and culture.
Interestingly, the level of subjective well-being was found to be greater among retiree households with higher qualifications, homeownership, higher incomes, cohabitation with a partner, and no dependent children. On the other hand, retiree households that rented, were single and lived with others, or were of Māori ethnicity reported lower levels of subjective well-being.
Moreover, it was noted that retiree households were more likely to express satisfaction with their daily financial needs and overall life contentment compared to households that hadn’t yet reached retirement. This group was also less likely to report experiencing financial stress.
We know that retires spend less on their discretionary expenditure later in life. Studies from the US have shown retiree expenditure decreases around 1-3% annually. Careful retirement planning is about projecting your necessary costs so that you can spend more on your discretionary expenses now.
As financial adviser we find sometimes the greatest benefit our clients receive is not being invested in some fantastic diversified investments. Its more about giving them the confidence they need to know their money will last. There is a freedom that comes with prudent retirement planning.
Please refer to our section on retirement for further information or contact us to work out a plan for your situation.