Advice matters
What’s your plan to bridge the ‘pension gap’?

Have you ever wondered how much you may need to save for a comfortable retirement, or even a more modest one? It’s a key question, and the answer entirely depends on the lifestyle you have in mind.

Having said that, the latest NZ Retirement Expenditure Guidelines provide some rough estimates. And it might be more than you expect… Read on for some interesting takeaways.

No frills or choices?

Published by Massey University, the Retirement Expenditure Guidelines calculate how much New Zealanders need to have saved on average, on top of NZ Super, to support either a basic standard of living (‘No Frills’) or a more comfortable one (‘Choices’) with some luxuries and treats.

Overall, the study found that most New Zealanders aspire to a standard of living in retirement than can’t be supported by NZ Super alone. And that’s why having a plan is important. As the report reads, “To avoid sleepwalking into retirement, people need to be proactive about their preparation. Factors to consider include budgeting, life insurance, health needs, living arrangements, Wills, enduring powers of attorney, family trusts and retirement activities.”

Measuring the ‘pension gap’

At the time of this writing, the NZ Superannuation rates (after tax at the M rate) are $436.94 per week for a single living alone, and $672.22 for a couple where both qualify.

With these figures in mind, the report estimates the difference between the total weekly expenditure and NZ Super. So, here’s the ‘pension gap’ that people need to bridge with their retirement savings:

  • For a one-person household with a basic standard of living, the pension gap amounts to $289.25 per week if they live in a city, and $162.98 if they live in regional New Zealand. For a more comfortable standard of living, the gap is $591.95 per week in the cities, and $679.29 if they live in the regions.
  • For a couple with a basic standard of living, the pension gap is $192.72 per week in the cities and $74.59 in the regions. For those with a more comfortable standard of living, the gap amounts to $798.04 per week in the cities and $503.92 in the regions.

Put simply, for all household groups, the average household spends more than they receive from NZ Super – and the gap keeps widening year after year.

How much would you need to save?

The 2021 report also estimates the savings required to bridge the pension gap, at the current level of expenditure and NZ rates. And once again, these figures may come as a surprise to some.

For example, a one-person household with a standard lifestyle needs to have saved $293,000 in the cities, and $170,000 in the regions. But that number rises to $600,000 and $688,000 for a more comfortable lifestyle. As for a couple who want to live more comfortably in retirement, they’d need to have saved $809,000 in the cities, and $511,000 in the regions.

What’s also clear is that the earlier people start putting money aside, the lower the weekly amount they need to save. The study found that a person starting to save from age 50, compared to one who started from age 25, would have to put aside about four or five times more every week to achieve the required lump sum.

The bottom line

Of course, these are just rough estimates based on a number of assumptions: they won’t tell you exactly how much you need to save or how much you’ll be spending. For example, what if NZ Super didn’t exist in the future? What about inflation? Also, depending on the retirement lifestyle you have in mind, your cost of living might be higher or lower than average.

However, what these numbers tell us is that saving for retirement is a delicate, but necessary, balancing act. And the goal is to ensure that you have enough income available for the lifestyle that you aspire to.

We’re here to help

Whether it’s through KiwiSaver or other investments, there are ways to create a good-sized nest egg: the key thing is to have a plan and start as early as possible.

Looking for a retirement plan that’s suitable for your short-term needs and long-term goals? As always, our SHARE financial advisers are just a phone call away. Click here to find an adviser near you – we’ll be happy to talk through your options.

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.