Contributed by Liz Koh. Republished from Stuff
The dream of a comfortable retirement lifestyle is gradually getting out of reach for many New Zealanders – not only those nearing the end of their working life with little or no savings, but younger people who have battled against record house prices to buy their first home.
The latest Retirement Expenditure Guidelines report published by Massey University paints a sobering picture. Using data from the Department of Statistics, the report looks at spending in retiree households and found that of the households considered, all are spending more than NZ Superannuation. How much more depends on where you live and how frugal or extravagant your lifestyle is. A two-person household living in a provincial area on a no-frills budget is likely to spend around $14 a week more than NZ Superannuation. On the other hand, city dwellers with a more comfortable lifestyle spend around $800 a week more. Clearly, if you are struggling to save for retirement, a move to a provincial area is a good strategy. However, that can mean leaving behind friends and family, both of which are important ingredients for a happy retirement.
One of the key determinants of well-being in retirement is ownership of a debt-free home. NZ Superannuation is simply not enough to cover mortgage payments or rent. Sadly, around 20% of retirees still have a mortgage and this percentage is likely to increase. In addition, around 25% of those over the age of 65 don’t own a home. Home ownership rates are falling, and those who have bought first homes in the last few years at record prices have correspondingly high mortgages. For many, the goal of paying off the mortgage before retirement will simply be unattainable.
Already many of those who receive NZ Superannuation are working to supplement their income. The Massey report includes key findings of a survey of 1000 retirees which shows that around one third of people over the age of 65 are in some form of employment. It would be interesting know if these people are working by choice, or because they are struggling financially. Given that nearly half of those surveyed regarded their current level of retirement income as inadequate for funding their desired retirement lifestyle, working seems to provide a much-needed supplementary income.
NZ Superannuation payments increase on 1 April every year as the amount paid is linked to the average wage. In theory, this increase allows for inflation, however it can be argued that the rate of inflation for retirees is different than for the average population and is probably higher. The key drivers for high costs of living for retirees are home ownership, property maintenance, property rates, and insurance – all of which have had big increases in recent years. If increases in NZ Superannuation don’t keep up with these costs then retiree incomes will decline in terms of purchasing power.
People over the age of 50 are worried about retirement. Of those aged between 50 and 65 in the Massey survey, only 40% believed they were well prepared for retirement. Uncertainty over just how much money is needed for retirement is clearly a cause of some of the concern. While day to day living costs are reasonably predictable, retirement plans can be derailed by unexpected expenses such as replacement of appliances, home maintenance, health costs and supporting children or grandchildren. Then of course there is the uncertainty of lifespan – and people continue to live longer.
All this adds up to a sorry picture of a generation who can’t afford to retire – well, at least, not on the terms they would like. What can be done to fix this problem? There are some policy fixes needed, particularly around the provision of affordable housing and the indexing of NZ Superannuation payments to the rate of inflation which applies to retirement living costs. More research and education is needed to ensure people are well informed of what their retirement living costs might be and how they can best prepare for retirement. Individuals themselves can improve their prospects by working with a financial adviser and developing good money habits.
Retirement can be delayed but not forever and anyway, do we really want to see our older parents and grandparents forced to work? It’s time to take action to stop retirement poverty.
Liz Koh is an Authorised Financial Adviser and author of Your Money Personality; Unlock the Secret to a Rich and Happy Life, Awa Press. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free of charge by calling 0800 273 847.
Republished with permission from the author. Click here to read the original article
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