27 September 2022

    What kind of retirement do you want?

    Chris Waters

    Senior Investment Analyst

    Email Chris
    Chris Waters

    Senior Investment Analyst

    Email Chris

    A recent Massey University survey of retirement spending shows that the government superannuation will not be enough for even a basic ‘No Frills’ retirement. And this really is ‘No Frills’ – with little money for luxuries or emergencies. For a more comfortable retirement, you’ll need to save more. Understanding the kind of retirement you want is the first step to achieving your retirement goals.

    How much do you need in retirement?

    The Massey University Fin-Ed Centre recently released its latest Retirement Expenditure Guidelines. This study surveyed 5,500 existing retirees to understand how much they are spending in retirement and what they are spending their money on.

    Everyone’s retirement looks different, so to capture this, the study divides spending into five buckets based on levels of expenditure. They then provide further detail within two categories: No Frills (the second-to-lowest spending level) reflecting a basic standard of living that includes few, if any, luxuries; and Choices (the second-highest spending level) that represents a more comfortable standard of living, which includes some luxuries or treats.

    We’ve looked at the amounts needed for a couple living in a metro area (Auckland or Wellington). If you live in another part of New Zealand, your costs will be lower so your budget will stretch further.

    What is a ‘No Frills’ or a ‘Choices’ lifestyle?

    A couple living in a metro area would spend around $931.17 a week for a No Frills lifestyle, versus $1,578.15 for a Choices lifestyle. Both these categories have increased around 7% from last year driven by high inflation.

    Let’s look at some of the more discretionary categories of spend in the report for a couple under both the No Frills and Choices budgets.

    • Groceries: No Frills includes an allowance for spending $127 a week on groceries per couple, which as we know from recent trips to the supermarket, doesn’t go that far these days. Choices allows nearly twice that at $217 a week. It’s a similar story with alcohol spend, with No Frills allowing $14 a week, enough for a bottle of wine. Whereas the $32 a week under the Choices lifestyle lets you stretch to a second bottle or maybe something a little bit nicer.

    • Dining out: No Frills sets aside $33 a week to spend at a cafe or on takeaways – so maybe one outing a week. Choices is nearly three times this amount at $92, enough for an extra meal out and a few more takeaway coffees.

    • Recreation and culture: This category includes everything from the cost of your TV and Netflix subscription, club memberships, spend on pets, books, and magazines - through to holiday accommodation. This adds $98 a week to your No Frills budget, of which $23 is spent on holiday accommodation, so this would probably fund one or two domestic holidays each year. Choices affords you a larger budget of $186 a week, so a lot more to spend on recreational activities, and maybe even allowing for an overseas holiday.

    • Clothing and footwear: No Frills budgets $15 a week to spend on clothing and footwear, so a few additions to the wardrobe each year. For the more fashion-forward, the Choices budget of $41 a week will stretch a little further.

    Source: Massey University NZ Fin-Ed Centre: New Zealand retirement expenditure guidelines

    No Frills really is No Frills

    We think there are a few key takeaways from this.

    Firstly, No Frills really is No Frills. There is a very limited budget for treats or luxuries, and there won’t be much left over for any emergencies. If your ideal retirement includes meals out and regular holidays – then you may need to rethink how much you need to save. Every dollar you put into your retirement savings now will mean more choices for entertainment, travel and eating out in retirement.

    Choices retirement lifestyle is not extravagant but still costs quite a bit more.

    It’s not a life of luxury. But it means flexibility to spend on some of the things that keep you busy, provide social contact and make life easier.
    Lastly, where you live matters. Living outside of the main metro areas of Auckland or Wellington could save you $130 a week on a No Frills budget or $315 a week on a Choices budget. Of course, we’re not suggesting you move away from friends and family just to save money, but if you are going to retire in one of the big cities you need more money because everything costs more.

    NZ Super is not enough

    Regardless of where you live, or whether you live a No Frills or Choices lifestyle, the average retired household spends more than they receive from the NZ superannuation payment.

    The current after-tax NZ super payment for a couple is $712.22 a week. This is still over $200 below the No Frills budget for a couple living in a metro area. This means households will either need other savings or to work part-time to meet their living costs.

    This is the difference that an early commitment to retirement savings makes. It ensures that you can live where you choose, can go out when you want, and enjoy the activities you love.

    Next month – we’ll discuss how much money you need to save to meet to these goals and how having the right plan in place can help you achieve the retirement that you want.

    If you would like to talk to someone about your retirement goals and how you can reach them, the team at Fisher Funds are here to help. Please contact us or get in touch with your adviser.