There is no question that times are tough right now and especially so for retirees. Many key retirement living costs (insurance, rates, petrol) are rising faster than the rate of general inflation as measured by the Consumer Price Index (CPI). Spending profiles for retirees differ from those for other segments of the population, so the CPI is not the best measure of how quickly costs are actually going up for this group.

There is only so much retirees can do to cut their living costs, so the solution to this problem lies in finding ways to increase income. While there is no ‘magic bullet’, there are a few things that can be done to help alleviate financial pressure through better financial management.

Here are a few tips: 

1. Use your NZ Superannuation wisely

Kiwis are very lucky to have a universal superannuation scheme that is not means-tested and increases every year in line with the average wage.

But we know from Massey University research there is a big gap between NZ Super and retirement living costs. The size of that gap depends on whether you are living on your own or with someone else, and where you live (it is less expensive to live in rural areas and small towns).

This means that spending on essential living costs should be the main purpose of your NZ Super income. Using your pension to cover ‘nice to haves’ may mean you end up having difficulty paying for your essential costs unless you have other income.

2. Draw down a regular ‘income’ from KiwiSaver or other investment portfolio

The amount you draw down can be a combination of both income and capital. The key idea is that you will run down your portfolio over your remaining life at a rate that is not so low that you end your life without having spent enough and not so fast that you run out of money. 

Having a set withdrawal gives you a fortnightly or monthly budget to work within so you don’t spend beyond what you can afford. The exact amount you draw down will depend on your age, health, lifestyle, how much you want leave as an inheritance and personal choice.

3. Keep some money in safe investments (bank deposits and bonds)

These are investments that don’t fluctuate in value and provide you with funds on hand to use for planned lump-sum spending (such as a new car or overseas trip) and unexpected spending (such as health expenses). You will also avoid having to sell up investments that fluctuate in value at the wrong time, such as after a market fall.

4. Work longer

This is not an easy strategy, as it depends on your occupation, how much you enjoy your work, your health, and your energy levels. For people in jobs requiring a lot of physical effort, this is not easy to achieve without a career change – for example, moving from being a tradesperson to working in a hardware store. 

If you have already retired and wish to go back to work again, you face the prospect of having to compete against much younger people. One solution is to set up a part-time business based on a hobby or skill you have. Another is to find one or two casual jobs to cover peak demand periods or staff absences. 

One of the key benefits of working longer is that you not only save more for your retirement but, by definition, your retirement becomes shorter, and your savings don’t have to last as long.

5. Focus on high dividend share investments to maximise income

While this is a popular strategy, it has several downsides. Shares paying high dividends don’t often show as much growth in value as other shares over time. There are fewer of them, which means your investment portfolio is likely to be less diversified, potentially creating more risk. For these reasons, this strategy is best used on a portion of your investment portfolio rather than the whole portfolio.

6. Consider strategies for releasing equity from your home

Moving from the city to a cheaper house in a small town has a double benefit – not only will you have extra cash on hand, but your living expenses in a small town are likely to be lower. 

But selling up is not the only option. You can consider selling part of the equity in your home to a financial service provider (such as Lifetime Home) or a member of your family. In all cases, the lump sum you free up can be used to provide a regular income to top up your pension.

The advice here is general and does not constitute specific advice to any person.