You’ve heard of FOMO (Fear of Missing Out) and JOMO (the Joy of Missing Out), but could you be suffering from FORO – the Fear of Running Out?
The latest New Zealand Retirement Expenditure Guidelines, from Massey University’s Financial Education and Research Centre, says a key issue in planning for the future for many retirees is the fear of running out of money. This can lead to over-saving, with the effect of reducing people’s pre-retirement quality of life.
“While in retirement it may cause under-spending even when sufficient funds are available,” the report notes.
This research shows that in New Zealand retirees still spend significantly more than they receive from the government’s NZ Superannuation. However, the good news is that the excess spending is less than reported previously for many.
It found that to June 2024, $909.90 a week was the typical spending for a couple living a ‘no frills’ lifestyle in a metropolitan area. A similar household in the provinces spent $1,031.85 per week. ‘No-frills’ refers to a basic standard of living with minimal luxuries, with the research measuring actual expenditure levels by retired households, not recommended levels. These ‘no-frills’ figures were up 3.3 and 2.8 percent respectively on 2023.
Meanwhile, a couple living a more comfortable ‘choices’ lifestyle in a metro area spends $1,739.48 per week, compared to a ‘choices’ lifestyle in the provinces at $1,210.18. This is an increase of just over 3 percent for both categories compared to 2023.
For context, the NZ Superannuation payment is $799.18 after tax for couples, indicating the degree to which retirees supplement their superannuation with extra income or savings.
For people living alone, a ‘no frills’ life in a metro area costs them $687.84 a week, up 3.3 percent. This compares to $564.25 (up 3.5%) in the provinces. In a metro area, an individual with a ‘choices’ lifestyle spends $768.76 a week, up 3.2 percent, or $752.41 (up 1.8 percent) in the provinces. A single person living alone receives $519.47 a week in NZ Superannuation.
The good news is the report reveals a slight reduction in the nest egg size needed to get through retirement, which researchers say suggests many households have adjusted their spending to dampen the impact of inflation.
The projected lump sum needed to support a two-person ‘no-frills’ household in a metropolitan area is now estimated at $120,000, or $252,000 in the provinces. Those after a ‘choices’ lifestyle need $1,142,000 put aside for retirement in a metro area, while in the provinces, it is $446,000.
Report author Associate Professor Claire Matthews says those approaching retirement still need to plan for additional income streams to achieve these retirement spending levels.
Enrich Retirement founder Liz Koh says the research shows how important it is to think ahead about things like where you want to live in retirement and how you can access the wealth in your house, as these can significantly impact your cost of living and ability to fund retirement. Liz says her Buckets of Money programme is set up to help people to think about issues such as these to help ensure they can hit the “goldilocks” spot between retirement savings and spending.
Dr Matthews adds that while the focus on retirement is now moving on to Generation X, it’s time for Millennials to start planning, too. In 2029, the last of the Baby Boomer generation will reach age 65, with Gen X following in 2030.
“While Millennials have more time, the first of that cohort are now around 20 years from reaching age 65, making it an opportune moment for them to begin retirement planning,” she says.
