The Retirement Spending Gap

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Massey University’s latest retirement expenditure guidelines, released last week, show the gap between NZ Superannuation and what retirees need to spend in order to have a comfortable retirement is increasing.

Every year, Massey undertakes research to calculate what is needed by retirees in both metropolitan and provincial areas to have either a ‘no frills’ or a more comfortable ‘choices’ retirement lifestyle.

There is a big difference between city living and a more rural lifestyle. The research shows that two retirees living together in a metropolitan area need retirement savings of around $809,000 in order to fund a ‘choices’ lifestyle, which requires around $800 per week more than NZ Superannuation. At the other end of the spectrum, a retired couple living in the provinces with a ‘no frills’ lifestyle need around $75,000 in retirement savings to cover the spending gap of around $72 per week.

In between this range, a ‘no frills’ lifestyle in a metro area requires a lump sum of around $195,000 to fund a gap of around $215 per week and a ‘choices’ lifestyle in a provincial area requires a lump sum of around $511,000 to fund a spending gap of around $576 per week.

The spending estimates appear not to include large sums for overseas travel or health costs. The biggest components of spending are food, housing and transport, all of which have increased significantly in the last year due to inflationary pressures.

There are a number of things that can be done to help close the retirement spending gap.

  1. Aim to pay off your mortgage as quickly as possible. The money that was being paid into your mortgage can then be paid into your retirement portfolio – KiwiSaver or your own customised portfolio. The sooner you pay off your mortgage, the quicker you will be able to build up your retirement nest egg.
  2. Make sure your retirement savings are invested in accordance with your investment time frame. If you have a long investment time frame, take advantage of that to invest in growth assets such as shares that will give you a higher return.
  3. As you move closer to retirement, consider where you want to be living. The Massey University research clearly shows that you need much less to live comfortably in retirement if you live in a provincial area.
  4. Around the time of retirement, look at the balance between the wealth you have tied up in your home compared to the wealth you have available in liquid (accessible) investments to fund your lifestyle. If most of your wealth is in your house, you are likely to be ‘asset rich and cash poor’. You will have a nice house to live in, but will struggle to pay your bills or enjoy your retirement
  5. Take a close look at how much you spend on the big expense items (food, housing transport), particularly food. You can potentially save around $100 a week on groceries if you are prepared to live on a more frugal budget.
  6. Do a budget. By cutting out spending which is not essential and not important to you, you can free up money for the things that bring you the greatest enjoyment.
  7. Once you are in retirement, make sure you take advantage of the discounts available to you as a SuperGold card holder (see There are discounts available on a wide range of purchases, as well as free public transport within certain hours.

By planning ahead, you should be able to close the retirement spending gap through increasing your retirement portfolio and reducing your outgoings.

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