24 November 2021

Sick of hearing how much you need for retirement?

Once again, Massey University has come out with its latest study on how much those in retirement are spending and how much you need to retire.

Yes, costs are rising, it now costs more than $1,000 a week for a retired person living alone in a big city if they wish to enjoy a few luxuries. For couples in the same situation, the cost is over $1,400 a week. These costs far exceed the value of the Government paid Superannuation (NZ Super).

This information comes from Massey University's NZ Fin-Ed Centre, in the latest edition of its annual Retirement Expenditure Guidelines 2021 (Read Full Version Here). The publication covers the 12-month period ending 30 June 2021.

The report identifies four classes of retirees to assess the cost of living in retirement. They are:

  • Metro – choices;
  • Metro - no frills;
  • Provincial – choices; and
  • Provincial – no frills.

We think of “choices” and “no frills” as being the difference between a latte and instant coffee. Or, as our Chair (Dame Diana Crossan) describes it, the difference between fresh pasta and dry pasta.

But you know this, you are in retirement, a uniquely individual time of your life. While surveys like these are genuinely helpful in highlighting the very real retirement income gap in New Zealand, everyone’s actual experience is different. At Lifetime we provide retirement income solutions to last a lifetime, which are unique to each of our customers, recognising their age and their personal retirement aspirations.

The income gap gives rise to all sorts of splashy articles with sensational headlines suggesting you may need to retire with millions. Frankly these sorts of headlines are not helpful for the retired community and, in our view, contribute to anxiety in retirement. Something we are working hard to reduce.

Further to this we believe the retirement savings projections miss the mark on a number of key elements. They really apply to those who are working and saving and ignore the hundreds of thousands of Kiwis already in retirement, no longer working and saving. They are in practice spending to support daily life in retirement.

The second failing is the projections are heavily assumptive, relying on a single point in time to assess mortality. Most studies that we have seen assume a universal life span to age 90. We know this is wrong and in fact 20% of Kiwis will live beyond the age of 90.

Lastly, they have to assume a long-term investment return, inflation, and tax rates. All good in the moment but we all know these change over time - you have already lived through plenty of these changes.

At Lifetime we formally review and update each of these elements annually to ensure our customers individual lifestyle requirements are consistent with their financial resources. We do this with actual data at the time of the review to ensure capital and income levels are managed to achieve a balance of lifestyle now and financial security for the future.

If you are in retirement, you are probably actively looking for a simple strategy to help you turn your retirement savings into a retirement income. And it starts by deciding how you will manage risk versus reward. Lifetime takes this very seriously, as retirement income specialists we know that spending in retirement requires different strategies to those saving for retirement.

The Lifetime Retirement Income Fund has been developed for the purpose of decumulation, not accumulation, these terms are financial jargon for saying spending versus saving. If you are in retirement, congratulations you are in the spending phase of life, and your money needs to be managed accordingly, so that you can meet your day-to-day expenses and spend with confidence.

We have worked hard to be a safe pair of hands for those in retirement, as we work to preserve your long-term capital to support your ongoing retirement income payments for life.

Photo of Ralph Stewart
Written by:

Ralph Stewart

Ralph Stewart is the Founder and Managing Director of the Lifetime Asset Management, managers of the Lifetime Retirement Income Fund.

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