Advice matters
How inflation is affecting Kiwis’ retirement planning

Inflation is a key factor that Kiwis nearing retirement need to plan for, according to the New Zealand Retirement Expenditure Guidelines 2022, published by Massey’s NZ Fin-Ed Centre last month. Here’s a summary of the key things to know, according to our SHARE advisers.

Why is this report important?

You may have stumbled across Massey’s annual report before – we talked about the previous edition earlier this year.

In short, it compares the average spending levels for retired New Zealand households with the current NZ Super rates, estimating how much money people need to save to fund their retirement. And once again, the 2022 report not only confirms that most retirees cannot rely on NZ Super alone, but the savings gap to bridge is getting bigger every year – especially in this high-inflation environment.

How much different retirement lifestyles can cost

Retirement means different things to different people. But for simplification purposes, the report divides retired households into two different lifestyles: ‘no frills’ (a basic standard of living with few luxuries) and ‘choices’ (a more comfortable one).

Based on the latest data, here’s how much retirees spend on average, depending on where people live and their standard of living.

The question is, how do these numbers compare to your current income?

The goal of retirement planning is to replace your current work income, so that you can achieve financial independence even if you’re not working. Hopefully, part of that retirement income will come from NZ Super, but what about the rest of it?

From KiwiSaver and other investments, through to your home or an investment property, think about the income sources you’ll likely have and those you could also add to mix. And importantly, don’t forget to consider inflation and its impact on your end goals.

NZ Super is lagging behind inflation

According to the Consumer Price Index (CPI), in the year to June 2022 the price of goods and services increased by 7.3% – which has put extra pressure on retirees’ spending.

As the table below shows, between 2021 and 2022, the total weekly expenditure increased for all households:

At the same time, NZ Super has been adjusted. But as Massey’s researchers pointed out, the increase on 2021 was ‘only’ 5.95% – not enough to keep up with accelerating inflation.

This largely explains why the difference between weekly expenditure and NZ Super has widened further, as shown in the following table:

The bottom line? When planning for retirement, keeping inflation in mind is crucial.

When it comes to investing, you may want to consider inflation risk when choosing the asset allocation in your portfolio: get in touch if you’d like to learn more.

What lump sum may you require at retirement?

Lastly, the report provides an estimate of the lump-sum amount required at retirement, on top of NZ Super.

Again, make sure you think about the steps you can take to get there. Our SHARE advisers, as always, can help you devise a plan that’s aligned with your needs, goals, and budget.

Depending on your circumstances, you may look at recalibrating your investment portfolio, finding opportunities to save more, and even adding extra financial tools to your toolbox. In some cases, you might consider working a few more years past retirement age, to put aside some more money and reduce the lump sum required.

One size doesn’t fit all, and we can help you find yours. 

Get in touch

Retirement – it’s a long-haul journey, and as financial advisers, we’re with you every step of the way. If you’d like to discuss your options, please don’t hesitate to contact us: click here to find a SHARE adviser near you.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.