People over 65 have seen a very sharp rise in financial hardship in the last two years. Essentials like food, housing and healthcare have, for some, become unaffordable. Interest rates remain high and there is no sign they will be dropping any time soon. Unfortunately, there is an increasing number of people over the age of 65 who still have a mortgage, and the increase in repayments is hard to manage on a relatively fixed income.

For those people who are lucky enough not to have a mortgage, the biggest weekly expense is food.. The University of Otago does a regular report on estimated food costs for households. The report considers three budget options depending on preferences – basic, moderate and liberal. The last report, published in 2023, estimated weekly food costs for a couple at $163 for a basic budget, $213 for a moderate budget and $276 for a liberal budget.. Converted to annual figures, these budgets are $8,476, $11,076 and $14,352. That’s a sizeable chunk of the net pension for a couple of just over $40,000 a year. In June, 2023, the food price index peaked at around 12.5% (annualised) but has since fallen to around 4.6%.

Housing related costs also make up a significant part of a retiree’s budget. Throughout the country, local Councils have had to sharply increase rates to cover their cost increases. Some years ago, the government commissioned an independent inquiry into local government rates. The Inquiry’s report, named “The Shand Report” after its Chair, David Shand, suggested that rates shouldn’t be more than 5% of a household’s income. Beyond this figure, rates become unaffordable. While some Councils use 5% as a benchmark of affordability, it is in relation to the average household income within the community. Of course, retirees fall well below the average. A retired couple paying $5,000 a year in rates will be outlaying over 12% of their income from NZ Superannuation and for a single person this rises to around 20%.

We need to add another layer of significant housing related cost for retirees and that is insurance. House insurance premiums have risen exponentially in recent years due to the impact of natural disasters in New Zealand. Insurance premiums can be as much as, or more than rates on a property. It’s no wonder that some retirees are forced to put themselves in jeopardy by not insuring or by underinsuring their house.

So what can be done to beat these rising costs? Much of the inflationary pressure is beyond our control, however there are actions we can take to protect ourselves in times of inflation.

The starting point is to make sure you are in the strongest financial position possible by having the right balance of wealth tied up in your home versus wealth invested to support your retirement lifestyle. If too much of your wealth is in your home, you will struggle to get by when times are tough. You can change the ratio by continuing to work, thereby building up your savings, or by moving to house with a lower value. You can also free up wealth in your home by unlocking the equity with a reverse mortgage. If you have an ordinary table mortgage, you may be able to refinance with a reverse mortgage which does not require any repayments during your lifetime.

The next step is to look at your annual budget. Food is probably the biggest category, and spending on food is something that you have a degree of control over. The Otago University study is a useful benchmark, and shows just how much can be saved in a year through living on a basic budget. There is around $6,000 a year difference between a basic and a liberal budget.

Rates are not something you can control directly, however you should make use of the rates rebate scheme which offers a subsidy for people on low incomes. If you are living in an area with a high rates structure, consider moving. Small towns and rural areas tend to have lower rates and also lower living costs in general.

Saving money on insurance is not easy. Firstly, you need to get an estimate of the valuation of your property for insurance purposes. Some insurance companies have calculators on their websites that will work this out for you. Another option is to use a valuer to obtain and insurance valuation. From there, it’s a matter of getting quotes for the amount you wish to be insured for. A broker can help with this. It is worth spending time to get the most cost effective deal.

Finally, make sure you are using all the discounts available to you with your Super Gold card, and that you are receiving all the extra Government benefits you are entitled to.

While times are hard now, remember that this is just yet another economic cycle and things will get better in the longer term. For now, it is a matter of hunkering down and surviving though this tough period.