Retirement Life
25 October 2023

The Retirement Income Gap


We all know that NZ Superannuation (NZ Super) isn’t enough to live on. But just how big is the gap between your pension and your expenses in retirement?


Retirement Expenditure Guidelines

Every year, Massey University releases a report showing the typical expenditure for retirees and the income required to cover those expenses. The report is based on data collected by the Department of Statistics as part of its Household Expenditure Survey, which it conducts every three years. Massey’s 2023 Retirement Expenditure Guidelines are based on the 2019 Household Expenditure Survey, with adjustments for inflation since then. You can read the full report here.


The report considers two geographical areas – the ‘Metro’ area, which covers our main cities including Auckland, Wellington and Christchurch, and the ‘Provincial’ area, covering the rest of New Zealand. It also distinguishes between a ‘No Frills’ lifestyle which reflects a basic standard of living and a retirement with ‘Choices’ which reflects a more comfortable lifestyle. Single person households are considered, as well as two-person households. For all categories, the data shows the average household spends more than their income from NZ Super.


Mind the growing gap

Even more concerning is the fact that the gap between NZ Super and household expenditure has increased over the last year, despite NZ Super payments rising by more than the Consumer Price Index (CPI). The main contributors to rising costs were food, recreation and culture, housing, household utilities and insurance. No surprises there.


The smallest income gap was around $86 a week for a two-person household on a no-frills budget in a Provincial area, increasing to a gap of over $902 a week for a two-person household on a choices budget in a Metro area.


Calculate what you could draw in retirement.

The estimated lump sum needed to fund these gaps ranges from $92,000 for a two-person household on a no-frills budget in a Provincial area to $969,000 for a two-person household on a choices budget in a Metro area.


It’s important to remember that these lump sums and the income generated off them are static and do not reflect individual circumstances. If you’re interested in data specific to your situation, try Lifetime’s Income Projector (click to view).


For example, based on Lifetime’s calculator a $92,000 lump sum could offer a range of income outcomes, depending on your needs. All incomes below are expressed as fortnightly payments, minus 17.5% tax on a lump sum of $92,000 invested in the Lifetime Retirement Income Fund.

  • A person receiving income from age 65 to 90 is projected to get $208, equalling $136,278 of income payments over 25 years.

  • A person receiving income from age 68 to 95 is projected to get $198, equalling $140,640 of income payments over 27 years.

  • A person spending more aged 65 – 84 is projected to get $215, and then at age 85 – 90 is projected to get $151 a fortnight equalling $134,413 of income payments over 25 years.

The obvious conclusion from the Massey report is that unless you find ways to live more cheaply than the average household, you will need savings to supplement your NZ Super. The amount you need will depend on whether you live with another person, whether you live in a Metro or Provincial area and how frugal your lifestyle is. If you want to explore how you might cover your own income gap, click here to get started. 


Options to grow your income

If you don’t have the required lump sum you have options to improve your situation:


  1. You can continue to work. The percentage of Kiwis aged 65 and over who are still working either full time or part time is increasing. Working not only allows you to continue saving, it also cuts down your time in retirement, meaning you need a lesser lump sum when you do stop working.

  2. You can take a scalpel to your budget and cut it right back to a ‘no frills’ budget or less.

  3. You can move from a more expensive city to a provincial area where weekly costs are lower. This may also allow you to move to a cheaper house, which means you will be able to add to your retirement nest egg.

  4. You can move to a cheaper house within your current geographic area, which allows you to free up money tied up in your house.

  5. You can consider ways of tapping into the equity in your home – for example by taking out a reverse mortgage or Lifetime Home (a soon-to-launch equity release product), or selling part of your home to someone else such as a family member.

As you can see there are a number of strategies for improving your financial situation in retirement. However, most of them rely on property ownership and, sadly, an increasing number of retirees are renting. For renters, the biggest challenge is finding alternative, cheaper living arrangements such as social housing.


The key calculation

Once you have your living arrangements sorted and a lump sum large enough to cover your income gap, the next challenge is to manage your money so that it generates a consistent, long-term income. You should be drawing-down from your investments regularly and at the right rate – ideally one that means you have enough to live on without running out of money before the end of life.


This is easier said than done, and that’s where Lifetime Retirement Income can help. As retirement income specialists, their sole purpose is giving you the confidence and peace of mind to spend safely in retirement.


Take control of your retirement income

Remember, Lifetime’s income projection calculator is a good place to start. This will give you an idea of how much income you could expect based on a given lump sum and lets you adjust for key variables like expected life span, tax, inflation and changing spending patterns over retirement.


Photo of Liz Koh
Written by:

Liz Koh

Liz Koh is a money expert who specialises in retirement planning. The advice given here is general and does not constitute specific advice to any person.

Invest with Lifetime for a retirement income managed for living.

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