Retirement Planning in NZ: Navigating Costs, Income, and Lifestyle Choices
Retirement planning in New Zealand requires more than just relying on NZ Superannuation. With inflation, rising living costs and varying lifestyle preferences, retirees need to consider their financial resources and future goals. Here’s a breakdown of retirement expenses, financial strategies, and how to prepare for this stage of life.
The Real Costs of Retirement in New Zealand
New Zealand Superannuation (NZ Super) provides a steady base income for those over 65, but it's generally insufficient on its own. Covering basic needs—rent, utilities, groceries, and healthcare—requires around $36,000 to $51,000 annually for a couple. A “Choices” lifestyle, which includes occasional travel, dining out, and some recreational spending, may require between $60,000 and $87,000 a year. For retirees aiming for a more affluent lifestyle with frequent travel or private healthcare, expenses could reach $100,000 or more per year. These estimates indicate that retirees need to save and invest to supplement NZ Super and maintain their desired lifestyle.
Working into Older Age: A Reality for Some Retirees
As living costs rise, many retirees are working into their 80s and 90s. Inflation in essential areas—housing, food, and healthcare—has outpaced adjustments to NZ Super, leading some seniors to seek part-time or casual work to make ends meet. Those without significant savings or property assets may feel this financial strain more acutely. Health expenses, for instance, tend to increase with age, and while public healthcare is widely available, private insurance or out-of-pocket payments are often needed for faster access to certain treatments.
This trend reflects a broader need for careful financial planning to ensure stability in retirement.
Supplementing Retirement Income: KiwiSaver, Investments, and Property
To create additional income streams, many New Zealanders are turning to options like KiwiSaver, property investments, and managed funds. Here’s how these resources can contribute:
KiwiSaver: This government-supported retirement savings plan provides an accessible foundation. Employees contribute 3% to 10% of their salary, and employers contribute at least 3%, making it a relatively low-maintenance investment. With KiwiSaver funds accessible at age 65, this savings pool can add to NZ Super and other income sources.
Property Investment: Property investment remains popular, with many retirees generating rental income or selling property assets to fund retirement. For those comfortable managing tenants and property maintenance, rental properties offer a relatively reliable income source.
Managed Funds and Portfolio Investment Entities (PIEs): These funds offer a diversified approach to investment, helping retirees build wealth without taking on the level of risk associated with individual shares. PIEs are particularly tax-efficient, making them an attractive option for those in higher tax brackets.
Lifestyle Considerations and Financial Planning
The type of retirement lifestyle you aim for will dictate your financial preparation. A modest lifestyle covering basic needs may be possible with a combination of NZ Super and small personal savings. However, retirees looking to maintain their pre-retirement lifestyle or pursue a “Choices” lifestyle—such as having flexibility for travel and entertainment—will need a larger asset base.
If you would like to understand how much you might need to accumulate by the time you retire, then feel free to get in touch.
Planning Ahead for a Stable Retirement
Starting retirement planning early and setting realistic savings goals can make a significant difference. Here are some steps to take:
Assess Income Needs: Determine your anticipated lifestyle and calculate your annual expenses accordingly.
Maximize Contributions: Contribute as much as possible to KiwiSaver, take advantage of employer contributions, and explore other investments.
Create Additional Revenue Streams: Consider property investments, managed funds, or part-time work to bolster income.
Review Regularly: Financial needs and life circumstances change, so it’s wise to review your savings and investments periodically and make adjustments if necessary.
Final Thoughts
Retirement in New Zealand can be a rewarding stage of life with the right financial planning and income strategies. For many, the combination of NZ Super, personal savings, and investments creates a foundation for a secure retirement. Being proactive about financial planning—whether through KiwiSaver, property investments, or other income sources—ensures that retirees can enjoy their golden years without financial stress.
Get in touch with your DUX Adviser today & take a deep dive into your accumulation phase (i.e., saving from now until you retire) and the decumulation phase (when you retire and start spending your savings).