Liz Koh: Plan for a shortfall in retirement

One of the most difficult aspects of planning for retirement is estimating how much it will cost to live when the kids and the mortgage are gone, and you are no longer working.

People find themselves in different situations at retirement.

Costs of living can vary depending on location and how many people are living in the household.

Ideally, everybody planning for retirement needs to set out a retirement budget based on their own circumstances, but this is not easy to do when you are still working or still have children at home.

A recent study by Dr Claire Matthews, of Massey University, gives clear guidelines on how much it actually costs to live in retirement, based on data from Statistics New Zealand's Household Economic Survey and an online survey (see www.workplacesavings.org.nz).

There are spending guidelines for eight groups of retirees, with groupings based on location (metro and provincial), household size (one or two) and budget type ("no frills" or "choices"). The guidelines exclude the cost of housing, which can vary considerably depending on location and whether you are renting or live in your own home.

The messages from the data are clear. At a "no frills' level of spending, NZ Superannuation is more than sufficient to cover non-housing expenses. However, any surplus is likely to be absorbed by housing costs.

At a "choices" level of spending, NZ Superannuation is almost enough to cover non-housing expenses for one person, but for a two-person household there is a substantial shortfall.

The "no frills" budget does not allow for spending on clothing and footwear, and allows limited spending on food, power, health, recreation, takeaways and restaurants.

To avoid poverty and have a comfortable retirement, retirees need income to supplement NZ Superannuation, either from part-time employment or investments.

Liz Koh is an authorised financial adviser. The advice given here is general and doesn't constitute specific advice to any person. A free disclosure statement can be obtained by calling 0800 273 847.