Ageing fast, saving slow: NZ’s retirement timebomb keeps ticking

Like many other countries, our population is ageing rapidly and in just five years, we’ll have more than one million people aged over 65.

“We’re ageing into a real savings shortfall,” says Blair Turnbull, CEO of Milford. “The demographics and the numbers are clear. The traditional ways we’ve done things are not fit for the future. We can’t just save through our homes.”

Our national savings habits, however, aren’t setting us up for a comfortable retirement. According to the NZ Society of Actuaries and the Massey University NZ Retirement Guidelines the average 45-year-old is on track to arrive at age 65 with around $156,000 in KiwiSaver. That’s well short of the $271,000 that is recommended for a ‘choices’ lifestyle in a city.

Home ownership isn’t a retirement savings plan
For our grandparents, a mortgage-free house was often seen as the way to save for retirement, but that is no longer a reliable strategy. The way we live has shifted dramatically over the past few decades. We now live longer, we’re less likely to own homes, and if we do own a home, it’s not necessarily going to be debt-free by the time we retire.

One fifth of Kiwis aged over 65 are renting, and another 14% are still paying off a home loan. Even those with debt-free homes can still be short of cash to cover their living expenses.

“You can’t eat your home in retirement,” Turnbull says. “A quarter of retirees are asset-rich, income-poor, and they really struggle to meet their day-to-day needs. That’s not the retirement we want people to have. It’s great to own a home, but having suitable savings to support your lifestyle is also important, and for this you need a diversified approach.”

Kiwi households are doing it tough and struggling to save
Retirement savings at an individual level can be daunting, he notes. “The average KiwiSaver balance is around $37,000, so if someone says you need a million dollars, you might think ‘I might as well give up now’.”

The ideal retirement fund would include not only a home, but also money that’s available immediately to pay your bills, which usually means a solid KiwiSaver fund plus other savings. But that’s much easier said than done when the cost of living is high and rising.

“Around half of New Zealanders are literally living payday to payday,” says Turnbull. Indeed, recent research indicates that a large number of New Zealanders would struggle to pull together $5000 if needed in an emergency. “If your household isn’t saving much, it’s important to know that you’re not alone – half the country is in a similar position, and we see this situation replicated around the world.”

How do we put money away for the future when our current spending has us at full stretch? It’s a difficult question – and one that, according to Turnbull, requires action on multiple fronts: from improving financial literacy and planning, to evolving KiwiSaver settings and expanding the ways New Zealanders can invest confidently for the long term.

“We acknowledge that it’s very hard at the moment, but that doesn’t mean there are no options. Can you make your current savings work harder? Are you in the right KiwiSaver fund? Can you budget better? It’s tough for a lot of families, but if you just keep kicking the problem down the road, the harder it becomes.”

Should we increase the age for NZ Super eligibility?
One way we can help tackle the retirement shortfall is by encouraging more investment into KiwiSaver. The recent change to increase the rate of the employee and employer contribution is a step in the right direction, says Turnbull, and he says Milford would like to see the rate rise again, reaching 5% – currently Milford as an employer matches Milford employee contributions up to 5%. In Australia, the compulsory rate paid by employers is 12%.

What about raising the age for superannuation eligibility, like so many other nations have done? Turnbull believes that shortening retirements isn’t the answer, particularly for people who have worked in physical jobs their whole lives. Instead, he would like to see all New Zealanders be better prepared so they can enjoy a high quality of life throughout their later years.

“There’s a natural tendency for us to procrastinate, but don’t put your head in the sand,” he says. “That’s not going to make it go away. Recognise that you’re not going to get instant gratification, and instead take a longer view. Understand your money, talk about it, make a plan for it, so you can have a comfortable lifestyle right throughout your later years.”