How Much Will Your Retirement Lifestyle Really Cost?

Retirement is not just about saving and investing. There are other things to think about, many of which will affect your financial planning for retirement in some way. In the second part of our review of the 2021 Pension Spend Guidelines, Financial Advice New Zealand Chief Executive Katrina Shanks examines some of these options.

OPINION: Much of the numbers in Massey University’s Fin-Ed Center’s Fin-Ed Center’s 2021 New Zealand Retirement Expenditure Guidelines, published in partnership with Financial Advice NZ and Consilium, raise some stark, even terrifying facts for early retirees to ponder.

These included:

  • The rate at which inflation can increase household spending in just one year.

  • The big gap between NZ Super tariffs and spending: $ 167 per week for one person living in the provinces (no frills expenses) and $ 798 for two people in the city (Choices expenses).

  • The lump sums required in retirement to fund expenses beyond NZ Super: $ 170,000 for the one above and $ 809,000 for those two.

  • Weekly savings required to meet these lump sums: $ 185 for ages 50 and over and $ 47 for ages 25 and over; and $ 917 for our couple ages 50 and up and $ 251 for our couple ages 25 and up.

But it doesn’t have to be scary because, as the guidelines say, there are other options that will directly or indirectly affect your financial planning for retirement.

Financial matters

The guidelines indicate that while they have discussed the spending of currently retired households, no two households are alike.

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* Note the void: couples need a $ 809,000 nest egg to retire at age 65 with “choices”

This is what a financial advisor would tell you, and that is the beginning of your planning.

Assuming you’ve established your saving habits – perhaps based on your situation and retirement needs as described above – and ideally as early as possible – your next step is budgeting or tracking your expenses, or both.

Budgeting or tracking will give you a better understanding of your projected retirement spending, with the added benefit of identifying potential areas of current spending that could be reduced in order to meet your retirement goal.

This is probably when outside advice can help the most. There are many ways that you can make small changes to your financial behavior that can have a huge impact on your saving ability.

The guidelines state that reviewing life insurance agreements is an important thing when you approach retirement. For example, if you no longer have loved ones and are out of debt, do you still need it? If you decide you still need it, how much coverage do you need?

They also suggest checking your health insurance. While many older people lead very healthy lives, others have health problems that come at a time in their lives when health insurance is generally becoming more expensive. As you plan, you may need to consider how to finance these rising insurance costs or whether you cannot rely on the public system and insure yourself.

Katrina Shanks.


Katrina Shanks.

Housing forms

The guidelines identify lifestyle as an “essential matter” to be considered in retirement.

In its 2020 report, Massey’s Fin-Ed Center examined the difference between living in your own home and renting it. It found renting to save $ 245-420 per week weekly from the age of 50.

These are big numbers and illustrate the importance of both owning a home and saving early.

This year’s report confirms that this is only part of the question. It asks if you own a home, will you continue to live in it, and for how long. And if you are likely to move closer to family, you have the money to perhaps buy in a more expensive area. Or, stay where you are and downsize to free up capital for income.

Other options are moving to a retirement home (where the financial arrangements are more complex and vary widely) or a retirement home (if you need inpatient care and for which you may be eligible for a government grant).

The guidelines state: “Anecdotically, those who decide to downsize or move to other accommodations such as old people’s homes often leave later than ideal.”

They also say that it is important to consider how your partner status can change: if you are currently in a partnership, what difference will it make to you if your partner dies? Would your plans to stay or move in your existing home change?

These are all good questions, and these conversations get harder and harder as you get older, so they are often thrown into the harsh basket. So there is no time like now to have the chat.

Retirement activities

It is important to think about what you are doing with the time you have after you retire and the costs that are available to you.

The guidelines indicate that staying home and doing things like reading and gardening might not be expensive, but buying plants might. While volunteering in community organizations can come with a minimal cost, sometimes those costs can be higher than you expect. And most recreational activities incur costs, both for equipment and membership fees.

If you are planning to travel then do you need to think about financing the purchase of a motorhome or if you have family overseas do you need to factor in that trip?

These are all little extras that can add up for a reasonable price unless you schedule them early.

When looking at your pre-retirement expenses to think about how they will change when you retire, the important thing is how comfortably you can live.

Budgeting is the first and most obvious step, but things like the cost of life and health insurance, lifestyle and retirement planning should be considered to cover as many of the basics as possible so that you are not surprised.

Once you have that number as your goal, the next step is to figure out how to get there. Don’t be one of those who sleepwalked into retirement – start planning now and reassurance that your retirement is covered.

As always, it always makes sense to seek further advice, preferably from a professional.

In Part Three: A Case Study of Retirement Options for a 25 Year Old With a Salary of $ 50,000.

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