HELPING KIWIS TO FLY
Useful hints, ideas and suggestions to help you get off the ground.
2023 Retirement Cost Estimates updated
October 2023
- Just after we released Version 2 of our planning guide, Westpac and Massey University released their 2023 Retirement Expenditure Guideline.
- Our free guide and planning spreadsheet have now been updated to reflect these new Massey cost guidelines.
- There are no surprises in the expenditure report:
- - costs continue to rise at or above the rate of inflation
- - high interest rates are making it difficult for people to save for retirement
- - superannuation alone is insufficient for retirement.
- You must have additional sources of income to enjoy any form of lifestyle in retirement.
- The Health and Ageing Research Team (HART) at Massey University also recently published a book summarising key findings from the New Zealand Health, Work and Retirement (NZHWR) longitudinal study. The study is a biennial survey of thousands of New Zealanders aged 55 years and older, examining “their experiences of health and wellbeing in consideration of their social, economic, and physical environments”.
- A point made in the book is that “most interviewees felt that planning was important and that individuals had a responsibility to plan”. If you want to create your retirement financial plan to ensure you have the additional income needed to enjoy retirement, you can download our free planning guides here via our Downloads page.
55,100 over 65+ experience financial vulnerability. Will you be next??
June 2023
- The government multi-agency report “Older people experiencing vulnerability and multiple disadvantage in New Zealand” (June 2023) indicated “55,100 of older people experience financial vulnerability”. They also qualified this number “The number of those experiencing vulnerability could be higher since our definition of financial vulnerability was limited to receipt of income tested benefits.”
- They defined financial vulnerability as having received one or more of the following Ministry of Social Development income benefits:
- • Main Benefit
- • Accommodation Supplement
- • Temporary Additional Support
- • Special Needs Grants
- as these benefits have eligibility criteria (such as low income and cash asset limits) that indicate that a recipient is likely experiencing financial hardship.
- They also indicated “Among those older people who experience financial vulnerability, a majority (47,600) applied for either Accommodation Supplement or Temporary Additional Support despite receiving superannuation.”
- The report also reminded readers that: “superannuation is built around the notion of home ownership. However, an increasing number of older people are ‘struggling to get by’ in retirement, even where a home is owned outright (Retirement Commission, 2022).”
- If you are worried about your retirement, the amount of money you will need, or where it could come from, then you need to develop a “Financial Plan for your Retirement”.
- Download our free, simple, comprehensive step by step planning guide to create your own retirement plan. It includes lessons, forms and discussion topics to help you prepare for your retirement. It answers such questions as:
- • How much do I need in retirement?
- • How much will I get from Government Superannuation?
- • How, and from where, can I get more money?
- • Where can I safely investment my money?
- • How much should I put into KiwiSaver?
- • Should I buy a 2nd property, a business, or invest in the share market?
- • How much do I need to keep aside for a rainy day?
- all from a very New Zealand perspective.
- If you follow this easy step by step guide, you will not only develop your own retirement plan for a long and prosperous retirement, you will increase your financial knowledge while preparing it.
- You can download our free planning guide here
Inflation. What does it all mean?
May 2023
- Only Stuff would create a headline: ”'Pleasant surprise' as annual inflation drops to 6.7%” and even suggests that “Annual inflation has plummeted to 6.7%” as being positive.
- At least Infometrics were a bit more honest: “NZ in a worse inflation position than other countries”.
- Who is right, and what does it all mean if you are retired, or fast approaching retirement?
- Each quarter, Stats NZ puts out two reports (basically two numbers) that are used by different organisations and media to describe ‘Inflation’ to support the story they are trying to tell (sell) you.
- These two numbers are the CPI and the HLPI:
- The consumers price index (CPI) measures how inflation affects New Zealand as a whole.
- The household living-costs price indexes (HLPIs) measure how inflation affects 13 different household groups, plus an all-households group. The all-households group, or the average household, represents all private New Zealand-resident households. One useful household group (of the 13) is Superannuitants.
The two measures of inflation are typically used for different purposes. A key use of the CPI is monetary policy, while the HLPIs is to provide insight into the cost of living for different household groups. The lessor known (but more useful one) is a true measure of the ‘cost of living’: the HPLIs.
One important difference between the two is the treatment of housing. The CPI captures the cost of building a new home, while the HLPIs capture mortgage interest payments. In the HLPIs, interest payments increased by 38 percent for the average household in the year to March 2023. In the CPI, the cost of building a new home increased by 11 percent in the same period. If you have used our free planning guide to develop your retirement plan, you will understand the importance of going into retirement debt free. You will also know how to invest for your retirement to beat the pressure of inflation (no matter which version you use).
Inflation measured via the HLPI for the year March 2022 to March 2023 was in fact for all households 7.7%. Unsure how that is a ‘Pleasant Surprise’ but I guess seeing for the previous quarter, inflation was measured at 8.2% some journalists will try and convince you this is ‘plummeting’ from the previous 30 year high. For Superannuitants, the March year inflation ‘plummeted’ down to 7.1% (down from 7.4% from the previous quarter).
So if journalists try and convince you that a 7% increase in benefit rates is well above inflation, you need to understand it is really just struggling to keep up with inflation. Which for some is probably a ‘Pleasant Surprise’, as historically benefits increases have been lower than inflation.
Don’t make the mistake of relying on journalists to give you financial advice or information. Learn how to make your own calculations and financial decision making. Learn how and from where you can download impartial data that will impact your retirement, and learn how to model any impacts this data could have on your retirement. You can download our free planning guide hereShould I rent or buy?
March 2023
- A Stuff article (1 March 23) “Renting v owning your home: Here's how it really stacks up now” suggested it was better to rent than buy. “Data from economist Shamubeel Eaqub has compared the financial situation for renting and owning, and found there was an added cost to homeownership …… He found, per week, nationwide renters were $311 a week better off. In Auckland, they were $452 a week ahead. In Wellington, it was $292 and in Canterbury, $228.”
- This seemed very inconsistent with our understanding (and based on the comments in the article, inconsistent with many other people’s understanding), so we decided to run our own numbers.
- We used publicly available information for inflation, rents, house prices, interest rates, tax and investment returns. We used a similar 20% deposit/80% mortgage as per the article.
- For the rent calculation, we assumed we invested the deposit in a growth fund (10 year horizon), and treated the return after tax each year as additional income. We used the regional average weekly rent for the applicable year multiplied by 52 for the annual rent. This gave us a cost of renting of: $187,169 over 10 years – or an average cost of $360 per week.
- For the ownership calculation we took the regional value of an average house at December each year, the average interest floating rate for the year, added average rates for the applicable year, insurance and maintenance. We used a purchase price of $379,193, and a sale price of $947,361 (before sales costs). We assumed the mortgage was interest only (so the bank had to be repaid at the end of 10 years), and we added real-estate and lawyers’ fees to the final sale transaction. This calculation indicated we would have made $644,000 by owning the property for 10 years. An average gain of $1,238 per week.
- Calculating the cost of ownership vs. renting over the last 10 years (Dec 2012 to Dec 2022) clearly demonstrated that ownership has been significantly better: Rent per week -$360 vs ownership +$1,238.
- And if you had been smart enough to have fixed your interest rate at various times during the 10 year period, then ownership would have come out even better. Even when we updated the house value at sale time (as per Stuffs later article ‘House price falls gather pace again in February…’) to the calculation, home ownership is still the better option by far.
- Clearly some economists and journalists may need to improve their financial literacy. While they have not yet downloaded our free guide to help them calculate the different options for accommodation - you can. We dedicate a whole section in our guide on how to compare different options for home ownership, renovation, relocation, upsizing, downsizing etc.
- Don’t make the mistake of relying on internet articles. Learn how to make your own calculations to help your financial decision making. It is your future you are betting the house on! You can download our free planning guide here
Updated your retirement plan lately?
January 2023
- New Zealand is currently expeirencing a 'cost of living crisis', and this is being felt by many people in the older generations.
- While inflation may be running at almost 8%, this is based on a generic basket of goods. And not all the goods in the basket are applicable to older people. When looking at a more applicable basket of goods used or consumed by older people (50+), then inflation is running closer to 11% for them.
- This means that you need to update your retirement plan with these higher costs and confirm you still have enough money left in the bank to enjoy your retirement lifestyle.
- The good news is we have spent the Christmas holidays updating our free planning guide and budgeting template with the latest costs provided from Stats, Massey University and the IRD.
- Download our free planning guide now to take control of your retirement. Go to our Download page, and start planning for the retirement you deserve. It is free, informative, and easy to complete.