Mind 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?
Key Findings
- The retirement income gap between the 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 one-person, no-frills homes in provincial areas (the lowest spenders of all) were spending over $171 a week more than they were receiving from the government.
- At the other end of the scale, a two-person ‘choices’ home in a metro area was spending $867 more each week than the NZ Super provided them.
- 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.
Retirement Expenditure Guidelines Report
What is the report?
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.
What did the report find?
For all categories, the data shows the average household spends more than their income from NZ Super. 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 $87 a week for a two-person household on a no-frills budget in a Provincial area, increasing to a gap of over $903 a week for a two-person household on a choices budget in a Metro area.
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.
Curious about the income gap you might face based on your circumstances? Check out the table below for insights.
The Difference Between Total Expenditure and The NZ Superannuation
Two-person household's weekly expenditure
Choices Lifestyle | Metro Area | Provincial Area |
Household Expenses | $1,666 | $1,331 |
NZ Super Payment | $799 | $799 |
Income Gap | $867 | $532 |
No-frills Lifestyle | Metro Area | Provincial Area |
Household Expenses | $982 | $850 |
NZ Super Payment | $799 | $799 |
Income Gap | $183 | $57 |
One-person household's weekly expenditure
Choices Lifestyle | Metro Area | Provincial Area |
Household Expenses | $1,163 | $1,263 |
NZ Super Payment | $519 | $519 |
Income Gap | $644 | $744 |
No-frills Lifestyle | Metro Area | Provincial Area |
Household Expenses | $826 | $690 |
NZ Super Payment | $519 | $519 |
Income Gap | $307 | $171 |
Managing the Retirement Income Gap
What is a retirement income gap?
A retirement income gap occurs when the money you receive from your pension (New Zealand Superannuation), isn't sufficient to cover all your living expenses once you've stopped working.
A pressing concern for retirees
As retirement approaches, many New Zealanders find themselves confronted with a pressing concern: Will their pension be enough to sustain their desired lifestyle?
As outlined in the table above, it's common for New Zealanders to discover that their NZ Superannuation payment falls short of meeting all their expenses in retirement. To address this, some may choose to work longer, work part-time to save more before retirement, or adjust their retirement plans to ensure that their savings can support their expenses in retirement. If you're thinking about continuing to work past retirement age, take a look at this article. It provides detailed information about your rights to work after turning 65.
Options to bridge the Retirement Income Gap
Most people will bridge the gap with retirement savings that they have accumulated during their working career, however, if this is not enough to bridge the retirement income gap, individuals must explore various strategies.
If you don’t have the required lump sum you have options to improve your situation:
- 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.
- Scale back your retirement. You can take a scalpel to your budget and cut it right back to a ‘no frills’ budget or less.
- Consider moving. 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.
- Consider downsizing. You can move to a cheaper house within your current geographic area, which allows you to free up money tied up in your house.
- Home Equity. 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.
Bridging the income gap with Lifetime Retirement Income
For those who have a form of retirement savings or a lump sum, it's essential to manage it wisely. You should be drawing down from your investments regularly and at the right rate to bridge the gap, ensuring you have enough to live on without running out of money before the end of life.
That’s where Lifetime Retirement Income can help. As retirement income specialists, our sole purpose is to give you the confidence and peace of mind to spend safely in retirement.
Lifetime helps you turn a lump sum (retirement savings) into a regular, tax-paid, fortnightly income designed to last for the rest of your life. So you can enjoy the retirement lifestyle you deserve.
- Lifetime helps you take care of the income part of your retirement plan.
- Lifetime actively manages the key unknowns: your life expectancy and investment returns.
- Lifetime's investment strategy is focused on supporting you to a target age, not on gaining high returns in any one year.
- Lifetime works to preserve your long-term capital to support your ongoing retirement income payments for life.
- Lifetime is backed by a dedicated team of industry experts
"Our purpose is to help people enjoy their retirement with the security of an income for life"