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Retirement Funding Quandary

Only 9% of New Zealanders believe that NZ Superannuation alone will give them an adequate income in retirement according to Horizon Research survey results released in March by the Financial Services Council.  New Zealand Superannuation currently provides a maximum (after tax) of $357 per week for an individual and $549 per week for a couple.

“As a nation we are not planning sufficiently for our retirement and we are certainly not feeling optimistic about our ability to survive financially when we retire,” said Peter Neilson Chief Executive of the Financial Services Council. 

New Zealanders have a well-founded lack of optimism about their financial position at retirement, said Neilson, and even those who believe they are prepared need to look closely at their savings plans.

Whilst 2.1 million New Zealanders have enrolled in KiwiSaver most are currently contributing at 3% for the employee and 3% for the employer respectively.  At these levels, individuals will fall below the savings threshold that will provide them with a comfortable retirement. 

In an earlier Horizon Research survey most New Zealanders defined ‘comfortable’ as a weekly living amount that is about twice that of the NZ superannuation entitlement, or about $300 more per week for an individual and $500 more per week for a couple.

Our calculations are that people need to save 10 per cent of their income from the time they start working to achieve a comfortable retirement,” said Neilson. “That percentage increases rapidly as people delay starting to save for their retirement.”  “We estimate that only about one in every ten KiwiSaver members are currently saving at a rate sufficient to fund a comfortable retirement.” 

With longevity increasing and average life expectancy improving faster than has been assumed in the Treasury’s long-term fiscal projections, the savings gap is likely to have serious consequences for many New Zealanders.  “We now know that the number of years that we will live after the age of 65 is growing at twice the rate that we used to assume. Our grandparents lived for 10-20 years after they reached the age of entitlement for superannuation but the majority of today’s school leavers are expected to live for 20 to 30 years after the age of entitlement. During those 20-30 years it is highly likely that substantial costs will arise such as the need to refurbish homes or replace a car. People will not be able to make it through their retirement years solely by living frugally.”  People, including politicians, tend to procrastinate. We all know that we will regret not having done more in terms of our savings when we reach retirement age. But for the next generation this will not just make the difference between comfort and luxury but between poverty and comfort for an extended period in their lives. We can avoid sliding into crisis gradually if we do something about this issue now. 

New Zealand superannuation is the best first-tier age pension in the world but it needs to be supplemented with wider participation in KiwiSaver and a gradual lift in contribution rates into KiwiSaver as wages and salaries increase and additional regular saving activities.



Research last August by the Financial Education & Research Centre at Massey University showed the cost of living a ‘no frills’ retirement for a couple living in a metro area was about $12,500 per year and about $12,700 per year for a couple in a provincial centre.  A comfortable or ‘choices’ retirement costs about $39,600 p.a. in a metro area and around $36,000 p.a. in the provinces.

However, these figures didn’t include housing costs.  If you add in the average housing costs according to Massey University, that pushes the cost of living up to around $27,000 – $33,000 p.a. for a modest retirement, and around $50,000 – $60,000 p.a. for a couple living a ‘confortable’ retirement.

Consumer Price Index data for Dec 2012 shows that insurance costs rose 7%, electricity costs rose 5% and housing and utility costs were up 3%.  Other main contributors to the increase were healthcare costs up 8%, domestic travel and holidays up 6% and fuel costs rose 3%.  These are just the things people like to enjoy in retirement i.e. more travel and leisure time, and are more reliant on medical and  healthcare.

A key decision you can make right now is to take an active interest in your retirement and KiwiSaver funds.  Make sure you are in the right investments to achieve your retirement objectives, as it could make all the difference between a modest or a comfortable retirement in years to come.

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