No frills retirement borders on poverty

Personal Finance

First of a kind retirement expenditure study reveals what older New Zealanders are spending on and how much. "It's not pretty," says Workplace Savings

16th Aug 12, 4:37pm by Amanda Morrall

By Amanda Morrall

Wonder what a "no frills" retirement entails?

If you're single and living in the city, it breaks down like this:

Food	$55.95 per week
Alcohol	$0.00
Clothing and shoes	$0.00
Power	$17.87
Household contents and service	$1.00
Health	$0.00
Transport	$4.70
Communication	$9.55
Recreation and culture	$8.59
Miscellaneous good and service	$15.72
Other	$0.00

On a New Zealand Superannuation income of $348.92, you may be forgiven for thinking the $113.38 a week it costs to cover the basics will leave you with change. The trouble is this bare bones budget, modelled on the actual retirement expenditures of Kiwis 65 and older doesn't include housing.

Factor in rent or a mortgage and this no frills lifestyle doesn't leave much room for milk, let alone frivolity.

Workplace Savings chairman David Ireland, reacting to the first-of-a-kind retirement expenditures study released Thursday by The New Zealand Centre for Personal Financial Education, said the amount older Kiwis were living off was bordering on poverty.

"The numbers are sobering; 25% of New Zealanders are living on less than what is really breadline stuff,'' said Ireland who confessed to a roomful of financial advisors present for the release of the study, that his weekly coffee budget exceeded the weekly food allowance of 'no frills" retirees.

By their own admission, 47% of the survey respondents (ages 65 and older) said they lacked the financial resources to meet their retirement needs. Some were having to borrowing to cover their essential expenses and others were using reserve mortgage facilities to cover medical expenses.

To determine how much retirees in New Zealand are living on, and how far their income goes to meet their needs, the newly established research outfit undertook a survey of expenditures in retirement.

The results were classified into two groups: 'no frills' and 'choices' the later group having some discretionary money to afford them "treats" or other luxuries, such as travel.

The cost for a two-person household to live a "more fulfilling choices" lifestyle was $765.56 per week in metropolitan areas (Auckland and Wellington) and $693.83 in regional New Zealand. Current NZS payments for a couple are $536.80 a week.

Massy University's Claire Matthews said researchers including herself were shocked to discover just how little some retirees are getting by on.

"The level of expenditure at the no frills level was stunning, that people can get by on that small amount of money is really surprising.''

While 79% of respondents indicated having an additional source of income beyond New Zealand Superannuation, Matthews said the majority would be lost without it.

Were the New Zealand Superannuation discontinued or even scaled back, the consequences would be dire, she warned.

"If New Zealand Superannuation is not around, it's going to be diabolical. If it's not available people will have to save up a whole lot because at a minimum they have to be providing that income level.''

The retirement expenditures guidelines, which the Centre for Personal Financial Education plans to update quarterly, are meant to help households plan more precisely for their futures.

Ireland said younger New Zealanders could be well served by the data in terms of targeting more specific savings. He said increased life expectancy meant New Zealanders would have to save more or else learn to do with less in order to have sufficient income in retirement.

"It's about making more sensible, informed decisions. The key message of this is 'Don't put off the fateful day and think that retirement isn't going to happen.' It's within your power during your working life to put something aside so you are not left with the no frills option, that you can get to the 'choices level' where you can have a comfortable retirement. Otherwise you are looking at a fairly bleak existence ahead."

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51 Comments

by Ralph | 16th Aug 12, 5:26pm 1345094778

There are so many ways to hear this.

It's very sad.

But money doesn't mean happiness in any measure.

Aren't people amazingly resilient.

Don't believe everything the insurance people try and sell you, could can live for a lot less than they tell you.

Of the 100 billion people who have ever lived we are amongst the wealthiest. I guess the poor will always be with us.

In my experience it's the family who pay.

by Justice | 16th Aug 12, 6:38pm 1345099115

Probably because they were silly enough to pay bank interest on mortgages to the tune of hundreds of thousands of dollars their ENTIRE working life?

A government pension SHOULD be "no frills" should it not? Otherwise people (and we already see it in this country) will take NO responsibility for their OWN decisions in life?

Yes, I'm the devils advocate...

by Ms de Meanour | 17th Aug 12, 3:58pm 1345175885

You're not "supposed" to put aside anything. It's entirely up to you, as is the responsibility for what your life will be like in retirement. The Government's obligation extends no further than ensuring that you don't starve, and NZS (just about) achieves that.

by David B | 17th Aug 12, 5:12pm 1345180369

Ask your average solo parent just how much they've exercised their "power to put something aside"

Evidently they exercised their power and fully flung their legs aside. So why not in other areas of their lives? Or does socialism demand that individuals may personalise their pleasures, but socialise their costs?

by Trolleyboy | 17th Aug 12, 6:41pm 1345185671

Yup, we should ignore greedy bankers, and venal politicians, and blame the poor. It's all their fault!

by powerdownkiwi | 17th Aug 12, 7:25pm 1345188309

Or those believers (Monty Python did a good expose of believers a while back) who think that they can always get stuff if they've got money, and that they can get money by doing nothing.

by moa man | 17th Aug 12, 7:31pm 1345188702

Monty Python also had a great song ...

"Always look on the bright side of life."

Try it one day, it might improve your outlook.

by Gummy Bear Hero | 17th Aug 12, 8:06pm 1345190769

I have a sneaky feeling that his gramophone needle is permanently stuck on Monty Python's " I'm So Worried " song ...... meebee he's worried about his hair is falling out , or he's worried about modern technology ......

.... or the baggage retrieval system they've got at Heathrow !

by powerdownkiwi | 17th Aug 12, 10:19pm 1345198758

Only those who would worry about something

assume other do.

And inevitable realities are only doom and gloom, to those who see them as so.

by Gummy Bear Hero | 18th Aug 12, 5:27pm 1345267661

Reckon we're at " Peak Worry " ..... or can the gloomsterisers push it up the Hill-of-Woe-&-Misery a little further ?

... sadly , I'm cast as a " worry denier " , by the resident hickeystericals .....

by powerdownkiwi | 18th Aug 12, 5:33pm 1345267984

Sorry, Misty, without energy you can't move on.

Thermodynamics trumps all.

Including delusion.

by JackJill | 18th Aug 12, 6:05pm 1345269912

pdk, you're on the right track. Which Uni did you get your physics degree?

by JackJill | 18th Aug 12, 8:24pm 1345278275

hang on mist, pdk has a degree in physics and has done statistics and maths courses. if he smells a rat, it points it out straight away.

by steven | 19th Aug 12, 12:34pm 1345336461

If you are so good with maths start with what energy we use today, consider the present expotential multiplier and,

a) tell me how many years from now it will take to need all the sun's energy that falls on earth.

b) tell me how many more years till we need all of the sun's output

c) How long for the milky way's output

c is from memory 2500 years.

At best all you can do is can kick while using up whats stored...

regards

by Trolleyboy | 19th Aug 12, 8:43am 1345322597

Funny - I smell a rat.....

by Gummy Bear Hero | 19th Aug 12, 11:12am 1345331528

When in Wellington , stay upwind of the Beehive !

by steven | 19th Aug 12, 12:26pm 1345335976

Friend of mine some years back moonlighted in kfc, she called the place kentucky fried rat...

regards

by notaneconomist | 19th Aug 12, 12:44pm 1345337045

GBH - Many thanks for the Sunday Morning laugh and of course the advice. I'll be far more mindful in a northerly breeze.

by Trolleyboy | 18th Aug 12, 7:35am 1345232105

Yes - but do you remember who sang it, and where?

by moa man | 18th Aug 12, 7:44pm 1345275861

Eric Idle , 12 November 2008, New Wimbledon Theatre, London.

You can watch it here.

http://www.youtube.com/watch?v=g2jb9U7fXH0

by moa man | 18th Aug 12, 8:26pm 1345278365

While your are thinking about that .....

See how the Greeks will always outdo the Germans, no matter what the competition.

Socrates....Scores!

http://www.youtube.com/watch?v=ur5fGSBsfq8

by notaneconomist | 18th Aug 12, 5:06pm 1345266390

David B

And for every solo-parent who flung their legs aside - there had to be another one there, who failed in their responsibilites. So that makes two individuals personalising their pleasures and socialising their costs. Thankfully not all single parents socialise their costs.

by muzza | 16th Aug 12, 9:50pm 1345110609

What a rant

by Gummy Bear Hero | 17th Aug 12, 8:54am 1345150447

Yes ....... wonderful , isn't it !

by MortgageBelt | 16th Aug 12, 8:04pm 1345104298

Those of us in the mortgagebelt, with kids, school fees, orthodontists bills, mortgages etc are used to living with zero disposable income ....

So no change in retirement ....

by Trolleyboy | 17th Aug 12, 8:14am 1345148071

I looked at the Work and Income website last night, and was surprised to find that when my wife and I retire, in a few years, our NZ super payment will be more than I currently earn for a 41 hour week. I think a lot of the navel gazing studies quoted about retirement income make incorrect assumptions about the income of the majority of citizens.

by WHODUNNIT | 17th Aug 12, 9:42am 1345153361

Just as well they [ the pollies] have drawn a members bill on euthanasia then isnt it - Obviously this is the ultimate plan for our governments - [regardless of political colour] in the future - any one for Soylent green - I am told its very nutritious and the cost is very low so the few remaining senioir citizens at that time will easily be able afford to eat at least once a week.....

by scarfie | 17th Aug 12, 12:06pm 1345161994

You remind me of a line wayback by the Australian comedian Austen Tayshus, who was making fun of the famine in Ethiopia.(we would call his work politcally incorrect today). His answer?

Send them all photos of Margaret Thatcher, then they won't feel like f****** eating.

by ngakonui gold | 17th Aug 12, 9:47am 1345153671

á poor man is a cripple a rich man is free

only a man with money can afford to have an opinion.

Both the above are quotes from somebody with the surname of winkeller but i cannot think who the are or what relevance to society they were.

by Frostwind | 17th Aug 12, 11:41am 1345160481

This is no surprise.

Government should stay out of this altogether and let the people be responsible for their own future. Tax us less, so we'll have more money to save, and then, through our own actions during our working life, decide our retirement fate.

That would be much better than sucking the lifeblood out of the working middle class and try to subsidies everyone when they retire (the money just goes to the landlords really).

Nothing is too big to fail, only too corrupted to fail.

by Andrew R | 18th Aug 12, 7:10pm 1345273823

For your selfish theory to work real wages would have to be raised for lots of people so there is something left over each week to save.

by notaneconomist | 19th Aug 12, 2:03pm 1345341809

Andrew R - Who's selfish? From where I'm standing it is very selfish to expect someone else to be doing the paying. Wouldn't you rather solve the problem of low wages in the first place?

All those people receiving a subsidy on their income like the working for families supplement are actually driving wages lower and helping to increase the number of unemployed. This is the effect of subsidies. It reduces the price paid by buyers (labour becomes cheaper) while increasing the quantity of supply (more people needing work). And just remember which Govt brought this subsidy in. And National has so far kept the policy as they know the mayhem to people's lives that will be caused if they removed it. Beware of the wolf wearing sheeps clothing.

by powerdownkiwi | 18th Aug 12, 10:33am 1345242780

Very simple to prove.

Take away the supplement, and see where 'the market' settles out.

While we're at it, tax all but the primary dwelling at a higher rate - be a good incentive for freeloaders to divest, and first-home buyers wouldn't be trapped feeding their would-be deposits to someone essentially taking advantage of having been richer, earlier.

They'd live in the same houses, but own them. They'd keep then in better condition, too, given that they would see them as 'homes' , not 'income'. Pride and participation make for better communities in all respects.

by notaneconomist | 18th Aug 12, 7:45pm 1345275950

Mist42nz - I think your correct on this one. The subsidy is not on the house it is a subsidy on income.

If a subsidy were on houses it would have decreased the cost to the buyer while increasing the quantity available. A housing shortage would not occur as there would be an over-supply in the market.

However the last Labour Govt when it placed a subsidy on income it decreased the cost of labour which increased the quantity available to work. Hence the higher unemployment numbers.

I have always been against the working for income supplements as they weren't actually dealing with the problems that existed at the time and assisted in driving house prices higher as the shortage issue was never dealt with. When the tax issues for investors were changed it just made matters worse.

Removal of the income subsidy in its current form would create hardship as the housing supply is short and incomes very low and rents will rise.

Removing the subsidy on wages and placing a short term subsidy on land/houses until equilibrium can be reached may solve the problem.

by JackJill | 18th Aug 12, 11:13am 1345245199

subsidy 101- they fundamentally distort the market.

read up on subsidies to find out what they do.

by JackJill | 19th Aug 12, 9:11am 1345324308

effectivly then in a society, the subsidy can go to welfare, or without it, would go to a stronger police force. interesting balencing act.

by Gummy Bear Hero | 19th Aug 12, 11:02am 1345330971

....... yes , but are the policies of Labour-Shearer-Sheeples , or of Johnny & the Gnats so very different .....

Unless we get some viable alternative political parties , with commonsense , and with a fiscally responsible agenda , the era of " entitlements " will roll on , unstoppable .....

by notaneconomist | 19th Aug 12, 1:39pm 1345340394

GBH - Exactly! National needs to go through every piece of legislation and have a sort out and they haven't done that yet. I think most people were expecting them to get in, tidy up the ship and toss a few things overboard.

The private sector is one of the most efficient and productive sectors around because they are funding the nearly 50% of people who are in the public sector. If this keeps up austerity will have to be imposed and like in the 1980's it was the private sector who got the job of getting the country back onto its feet. This time the stakes are higher as there will be $50 billion or Govt Debt.

The public sector bureaucrats seem to think they add value and haven't seen themselves as the drain on society that they are. I noticed in a report that 75% of them have job satisfaction - Oh that is so wonderful to my ears NOT. The 21st Century Gold diggers are HAPPY because they are getting a ride on the private enterprise purse. I recenlty visited a 3rd world country and saw the same phenomena, Mainly young females chasing the tourists for what they thought was in the wallet. I immediately thought of the Govt and bureaucrats back here!!!!

I used to rate common sense but then someone reminded me that:

Common Sence is not a gift. It is a punishment coz You have to deal with everyone who doesn't have it.

by Wolly | 18th Aug 12, 8:15am 1345234508

Why would young people opt to save for retirement!...they know that any savings would be eaten away through the endless debasement allowed by the RBNZ at the behest of the govt...they know that new homes include every possible cost hike scam going and then some...unless they plan on living in a maze of scaffolding and red tape....

Most young people shudder at the thought of becoming zimmer fodder in a retirement death camp....they would rather cark it having fun skiing or sky diving, snorting chemicals or popping pills...

by notaneconomist | 18th Aug 12, 4:29pm 1345264161

Before everyone jumps up and down - panicking about how they are going to afford retirement perhaps we need to consider some standout points in Amanda's article.

The New Zealand Centre for Personal Financial Education is a joint model between Westpac and Massey University and Work place savings has gold sponsors which includes banks.

So the Banks join forces with an Educational Institution and part of that joint arrangement is a study which reveals that a percentage of retired people are "living on less than what is really breadline stuff".

"The retirement expenditures guidelines, which the Centre for Personal Financial Education plans to update quarterly, are meant to help households plan more precisely for their futures". So the banks want everyone to save more money or you could end up like the 21% group.

"While 79% of respondents indicated having an additional source of income beyond New Zealand Superannuation" which is a pretty high figure of pensioners who have investments or maybe employment activity or other things. This means that 21% of pensioners face issues surrounding weekly costs. We do not know the issues surrounding this group of 21% other than they don't have much money each week.

If one wants to avoid the same thing happening to themselves then it would be nice to know what some of the issues were so that maybe you could avoid them. It could be that some of the 21% could have had prior problems e.g. unemployment, medical health or injuy issues either with themselves or family, loss of capital through finance company failures or other organisations or people, low-paid jobs, bankruptcy, family member borrowing and loosing their money or family members ripping them off etc.

Most people would obviously want to avoid this breadline lifestyle and end up trying to save like crazy which is probably what the banks wanted all along. If the banks can leverage off your savings they get quite a few advantages.

Do you let a bank leverage off you or do you leverage off the banks? This is something that people need to consider as your standard of living in retirement could depend on it.

It seems to me that savings are a lazy persons way of not taking care of himself. If you fail to put your savings or capital to work someone else is always willing to make it work for them.

by moa man | 18th Aug 12, 4:40pm 1345264819

'It seems to me that savings are a lazy persons way of not taking care of himself.'

That statement could only come from someone who doesn't have any savings, and is not ever likely to.

by notaneconomist | 19th Aug 12, 7:06am 1345316768

Moa man - Read my comments in the context they were written rather than small extractions. Was I not referring to bank savings? Is it wise to hold money in one investment/asset class such as savings? The current environment of interest rates, inflation and taxation that we are experiencing is not great for a savings only policy on anyone's investment portfolio. The saver just ends up subsidising the banks profit. If you don't believe me put a $100k in a NZ bank and monitor the effects over a year. Or better still you could put another $100K in say an Aussie bank account, there are quite significant differences in the outcomes. Money can be the most disobedient servant so learning to master the stuff is imperative.

by moa man | 19th Aug 12, 8:28am 1345321693

There are many occasions when it is wise to be holding only cash savings.

GFC around 2008 -2009 was a recent example.

Even in more normal investment conditions, having a large proportion of your portfolio in cash savings, means larger risks can be taken in other areas.

By having the large cash backup position, you are never a forced seller, should what ever market you are invested in, take a turn for the worse.

Which means your exit point on any investment is a decision you get to make, and is not a decision forced on you by market conditions.

I have found this gives a significant advantage.

by Frostwind | 19th Aug 12, 1:35pm 1345340121

What is a letter of credit position? How do you obtain that?

I would like some comments on how to best put the spare cash to use?

by notaneconomist | 19th Aug 12, 12:14pm 1345335273

Moa man - the fact that you have investment strategies tells me that you probably take action with your finances and that was the point I was making. Many people fail to have any kind of plan and place their money in the bank hoping to gain enough off that investment for their future needs.

I agree that cash savings were important during the GFC - You could use the stuff actively in Aussie and the US on the options market using all the volatility to advantage. If one got landed with any stock you could just rent them out for a bit getting some monthy income on the way.

You have to put your cash to work otherwise it is sitting idle and going backwards.

by Stephen Hulme | 19th Aug 12, 1:39pm 1345340378

You have to put your cash to work otherwise it is sitting idle and going backwards.

Put it to work with whom as a counterparty or agent?

by Gummy Bear Hero | 19th Aug 12, 3:01pm 1345345313

I know it's old hat of me to say this ( and currently a most unfashionable argument ) , but the lifeblood of an economy is business ....

.... therein is created wealth , jobs , innovation ..... That is where cash goes to work most productively ...

The government can take , but only the private sector can make .

by powerdownkiwi | 19th Aug 12, 4:38pm 1345351136

"You have to put your cash to work"

unbelievable.

How many joules to the dollar?

That kind of nonsense, only worked until it didn't. Work is done by expending energy, and nothing else. That can happen - and for most of the world's history, has happened - ex money. Interesting to note that the lack of understanding includes thinking the 'GFC' (it was a result, not the driver) is past.

The decline hasnt' even started, that was just the overshoot.

by notaneconomist | 19th Aug 12, 7:02pm 1345359742

PDK - Maybe your question "How many joules to the Dollar"? is back to front.

Oh, by the way international rumour has it that after carbon is fully taxed to its potential the powers that be, would like to find a way to otain a tax off the free power from sunlight.

I suppose this would bring it in line with power generated from water and wind etc.

by Trolleyboy | 19th Aug 12, 7:20pm 1345360842

I'd love to see the website you got this "international rumour" from......or is it something which is only whispered secretly into the eager ears of non economists?

by Wilston | 12th Oct 12, 12:17am 1349954255

If your projected retirement profits is more than your predictable retirement spending, allow physically to heave a big exhale noisily of release,If the information are the other way surrounding, it's occasion to sit down for a serious think.
http://www.qoutz.com/retirement-quotes