The Future of Retirement for New Zealanders
What does a comfortable retirement look like?
Getting closer towards retirement can be an exciting time, but it can also feel daunting and you’ll certainly have some unanswered questions such as:
Do I have enough money to retire on?
How much am I able to spend in retirement?
Am I going to be able to go on holiday or give generously?
With retirement, there comes some uncertainties but with careful preparation and planning, and a strong retirement strategy you can feel comfortable knowing that your retirement will be an enjoyable and relaxing time in your life with some of the best years ahead of you.
What sort of retirement?
When planning for retirement, it’s important to consider the kind of lifestyle you envision. Depending on your savings, investments, and overall financial situation, your retirement could fall into one of these four categories:
No Frills Retirement - This type of retirement focuses on meeting basic living expenses with minimal extras. It typically means covering essential costs like housing, utilities, food, and healthcare, but with little room for luxuries or discretionary spending. Those with smaller savings or relying primarily on NZ Superannuation might fit into this category.
Moderate Retirement - A moderate retirement allows for a comfortable standard of living, covering all essentials while also including some discretionary spending. You’ll likely have room for occasional travel, dining out, and hobbies but with a focus on staying within a budget. This lifestyle is achievable with modest savings or additional income streams on top of NZ Super.
Choices Retirement - In this category, you have the financial freedom to make choices that enhance your lifestyle. It’s a retirement where you can afford regular travel, social activities, hobbies, and home upgrades. You’ll have more flexibility in your spending without needing to watch your budget as closely. A solid retirement plan and well-managed investments typically support this lifestyle.
Luxury Retirement - A luxury retirement is for those with substantial savings or wealth, offering complete financial freedom. It allows you to enjoy an upscale lifestyle with frequent international travel, top-tier healthcare, high-end dining, and indulgences like a second home or luxury purchases. This type of retirement is achievable with significant assets and income sources.
Retirement Spending
One of the most important aspects of retirement planning is knowing how much money you’ll need to cover your weekly and annual living expenses. This allows you to estimate whether your savings, investments, and NZ Superannuation will be enough to support the lifestyle you want in retirement.
Look at your current spending and expenses and gather a rough idea of how much you will need to maintain your chosen lifestyle over the course of a year. If you aren’t too sure if this number feels accurate, you can also look to the NZ Retirement Expenditure Guidelines 2023 that reflect on average the current retiree spending amounts.
The Retirement Spending Gap
The retirement spending gap is the difference between a retirees spending, and the income they receive from the NZ Superannuation. You would have likely noticed that the spending amounts in the chart above are a lot higher than the NZ Super allowance. For the 2024 – 2025 Superannuation rates please read our blog here.
NZ Super
According to the New Zealand Retirement Expenditure Guidelines, for a two-person household in a metropolitan area, NZ Super covers only around 50% of the costs for a “Choices” lifestyle, while for single retirees in a metro area, it covers approximately 63%. These gaps highlight the importance of planning ahead and supplementing NZ Super with additional savings and investments to maintain a comfortable retirement lifestyle.
The New Zealand Retirement Expenditure Guidelines shows that 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. With that data, you’ll want to ensure that before you retire both you and your partner have a considerable nest egg to accommodate the difference.
Closing the Gap
While NZ Super provides a foundational income, it will likely not be enough to sustain your retirement lifestyle on its own. This is where KiwiSaver and/or other investments can step in.
KiwiSaver: Your KiwiSaver savings are an essential tool to help cover the shortfall between what NZ Super offers and what you’ll need to enjoy a comfortable retirement. By understanding your KiwiSaver contributions and growth potential, you can better plan for your future, ensuring you have the funds necessary to close the gap and achieve your retirement goals. We can provide you with a retirement balance projection alongside KiwiSaver fund recommendations suited to you. Complete our KiwiSaver or Retirement Quiz to get started.
Investments: Consider investing a portion of your savings and start building up an investment fund targeted specifically for retirement. This type of investment may be beneficial as you’ll be able to access before 65 (unlike KiwiSaver that is unable to be withdrawn until you are 65). This way, you may have the option to retire on these funds early.
Other ways to accommodate an income shortfall could be:
Downsizing home: Selling your current property and moving to a smaller, more affordable one can free up capital to fund your retirement lifestyle.
Continue to work: Working part-time or in a flexible role can help extend your savings while keeping you active and engaged.
The key to a secure retirement is taking action early. Evaluate your current financial situation, set clear goals, and use all available resources—like KiwiSaver, investments, and retirement planning tools—to create a comprehensive plan. Retirement should be a time of freedom and joy, not financial stress.
We can provide comprehensive retirement planning strategies combined with KiwiSaver recommendations and reports to ensure you have a clear path forward to retirement. If you are interested in learning how to structure your retirement funds please complete our Retirement Quiz and reach out for a personalised report and cashflow modelling – see our video here for more information on what this looks like.
Compound Wealth are a KiwiSaver, Retirement and Private Wealth Financial Advice Firm based in Mount Maunganui, Bay of Plenty with clients all over New Zealand.
