Retirement in a Nutshell

Retiring without savings means certain struggle. Superannuation payments are like welfare - they don't pay for any kind of lifestyle. Our guide explains everything you need to know to avoid the all too real 'pensioner poverty' trap

Updated 1 April 2023

Warning: This guide may cause anxiety. Retiring without sufficient savings is like going out to dinner with a $20 note. You can probably cover yourself, but miscalculate what you spend and you're in a bit of bother.

Creating a retirement within your means is incredibly important. You'll be able to do all the things you currently do, as well as enjoy things you've always wanted to do. But if you retire without savings, you are unlikely to have a happy time. Superannuation payments are like JobSeeker Support benefits - designed to keep you alive, not in a lifestyle. And retirement can be expensive, especially as you get older. Worst yet, if you usually rely on personal debt such as credit card and personal loans then companies rarely want to lend to unwaged customers.

Why should I read this guide?
We’ve put this guide together for one reason – to give you the information to avoid a miserable retirement. We cover what we consider to be the facts of money in retirement, and how you can make sure you're not caught out by being poor. Best of all, we’ve done our very best to make it as engaging as we can.

Our Retirement in a Nutshell guide covers ten money must-knows:

Know this first:

Every New Zealander 65 years of age and older receives a fixed superannuation payment, which is paid every second Tuesday. It's about $530 a week (before tax) if you're single and live alone or $800 a week (before tax) if you're a couple. The payments you receive have tax deducted at the standard tax rate.
The money, as generous as it seems, won't go nearly as far as you think. There's also no way to increase the amount.
If you need any more money, you'll either have to apply at Work and Income (see our guides), or sell something, or, if you can, get a job. Otherwise, you'll need savings.
'Pensioner poverty' is a real thing and those experiencing it are growing as a proportion of retirees. Once you're in it, there's very little you can do to get out of it.
Don’t expect to solve the problem later. Lots of people in their 50's think they will make "big wins" with ill-conceived property development, an FX trading scheme or speculative business purchase. It's arguable 95% to 99.9% of them ruin their retirement in the process because they lose the small retirement savings that they previously had. There is a lot of snake oil salespeople out there promising riches - be very careful. Saving responsibly with a trusted KiwiSaver scheme offers much lower risk.

Our view: The BEST situation to be in at 64 is the following:

Own your home (with no mortgage owing)
Have no personal debts (credit cards, long-term finance etc.)
Have at least $100,000 saved (it may sound impossible, but it will make a big difference to your retirement)

Retirement in a Nutshell - Everything in You Need to Know

Retirement doesn't need to be complicated or scary -it just needs to be planned for. This guide sets out ten basic must-knows for achieving a comfortable retirement.

If you do have any questions, please email our team - we'd love to hear from you.

Superannuation income doesn't pay for a lifestyle - it only covers basics living costs

You'll hear "save for your retirement" your whole life, yet it's very easy to ignore. So many of us want to live for "now", not "later". Later seems a long time away, and there are more pressing needs like credit card bills, supermarket trips, family expenses, holidays, rates, rent...and lots more. But it's not an understatement to say that retirement without savings is going to be miserable.

How miserable will it be without savings?
Spoiler alert: Very. Right now, a retired couple receives around $750 a week before tax. This sounds like a lot for doing nothing, but it's not. It's the same as if both of you earned $10/hour for a full week of work (before tax is deducted). There's also no guarantee that the age you will receive superannuation (currently 65) won't increase.

$750 a week is about $33,000 a year after-tax. Again, it sounds a lot, but after power bills, rates bills (if you own your home), repairs, maintenance, running a car, supermarket shops and general living, you can quickly be left with $0. And, if you don't own your own home (and many retirees don't), your superannuation payments will be eaten up by rent.

Summary – Superannuation payments in a nutshell

The fortnightly payment is for subsistence; it's not to finance a lifestyle. If you want to do a lot of the things that you're used to doing, you'll need to have savings and/or continue working (both of which we outline below).
Think of superannuation payments as a form of Jobseeker allowance for retirees and work backwards from there.

Paid employment opportunities for anyone over 65 are limited

The reality is that New Zealand, like many countries, has ageist practices in the workplace. We don't think it's an understatement to say older job hunters are discriminated based on their age nowadays. For that reason, securing work over 65 isn't going to be easy. This limits the options to earn an income outside of your superannuation payments.

Summary – Paid employment above 65 in a nutshell

It's not easy to find a paying job, and keep in mind you won't have the energy you do right now when you hit your mid-60s.
If you do find work, your superannuation payments won't be affected. However, any extra benefits like an Accommodation Supplement or disability allowances will be reduced in line with your earnings.

Retiring without savings at 65 is almost-certain misery

If you currently have a comfortable lifestyle, there's no guarantee it will carry on into retirement. If you have no savings, you almost certainly will have a tough time after 65. If you're accustomed to buying a new car every few years, taking trips for Fiji and Hawaii, dinners out with friends and new clothes, these are (for most people) all paid by cashflow. When you hit retirement, wages are replaced with the limited superannuation payment discussed above.

Picture this: If your household income is currently $150,000 per year, receiving $32,000 a year (the current superannuation a couple will receive after tax) is going to be a shock. And worst still, you're not able to do anything about it.

The Brutal Truth - Unless you retire with savings, you can (most likely) say goodbye to the following at 65:

Overseas holidays
Regular dinners out with friends and family (unless they pay, which isn't ideal)
A new car
New clothes or shopping trips (without careful consideration).
Presents for family (without having to carefully budget and sacrifice something else)
A boat or 4WD
A holiday home. Paying the rates and ongoing expenses can become unaffordable if you're relying on superannuation.
Renovating your home
Health insurance
Helping your children or grandchildren financially in any significant way (if they need assistance)
Generally, a lot of fun and happiness

What can I do if I retire without savings?

You'll be able to enjoy basics things, but you'll forever be watching your expenses. You may never adjust to a fixed income and this may cause depression. Worst of all, there's no way to change your circumstances.
Ask yourself - could you live on about $300 a week right now, for the rest of your life? If not, then saving for your retirement should be a priority. Best of all, it's easy to do, and you'll enjoy a much better lifestyle.

Summary – Retiring without savings in a nutshell

Having retirement savings at 65 is going to make a HUGE difference to your quality of life. Most fun things are paid for by cashflow. Savings convert into cashflow and mean you'll have choices.
It's never too early to save, and you can never save enough.

KiwiSaver is going to make a difference to your retirement (but you're probably saving too little right now)

KiwiSaver's default contribution rate (how much you invest) is 3%. Most people contribute only 3%, but even in the best circumstances this will only give them a retirement salary of 30% to 50% of their average working salary. This assumes they join KiwiSaver no later than 25 years of age, and the money will only last for 10-12 years. Our KiwiSaver calculator shows this clearly and is worth a few minutes playing around to see your prospects.

What can I do to avoid retirement misery?

Contribute more. It comes down to sacrificing today to live better later on. Even 6% of your salary (3% each between you and your employer) can add up, and the earlier you start, the better your retirement. The government also tops up your KiwiSaver investment every year, so it really is a win-win scheme.
Make sure you're in a good fund. Our top five KiwiSaver funds is a suggested list of popular and proven options that have long-term growth at their heart.
Avoid default funds. Many New Zealanders are in default funds, and despite government-led efforts to move them to appropriate funds, many providers don't or can't make effective contact with default fund investors. Investing in the wrong fund is like driving in second gear from Auckland to Wellington - slow, expensive and overall just bad.
Avoid the non-contribution trap. It's easy to sign up to KiwiSaver and then opt-out for a savings suspension (AKA contribution holiday). Government data from 2019 shows that 1 in 3 KiwiSaver members don't contribute. We think this is very bad news - being enrolled in KiwiSaver but not contributing means $0 for your retirement. Our suggestion is to always contribute; even if you think you need the money now.

Summary – KiwiSaver in a nutshell

We believe New Zealanders will experience a retirement time bomb in the coming years - by 2050, we predict a meltdown in that the majority of New Zealanders won't have enough saved to retire comfortably on. This is supported by analysis from FMA KiwiSaver reporting and industry experts.
Contributing over and above the 3% minimum is the only way to take full advantage of the scheme. The more you save, the more obtainable a comfortable retirement is.
Be aware: KiwiSaver statements now display your projected retirement balances, but they are based on a number of assumptions (an annual 3.5% pay rise, no withdrawals, no contribution breaks and an annual after-tax return of 2.5% (conservative fund), 3.5% (balanced fund) and 4.5% (growth fund) is somewhat unrealistic in low-interest rate and post-COVID-19 times. We believe the estimated savings projection shouldn't be relied on in any shape or form.

Reverse mortgages (AKA equity release) can leave you in a terrible financial situation later on

Reverse mortgages are also known as retirement "equity release" loans. They provide cash-up-front, with no repayment needed until you sell your home, move to a rest home or pass away. If you own your home, you can live in it while borrowing money based on its value.

Why do reverse mortgages exist, and are they any good?

They exist to solve the problem of retirees having no cash: It's a common problem: you retire and have a mortgage-free house, but the New Zealand superannuation and personal savings don't cover the purchases you want to make.
They offer high-interest debt: On paper, reverse mortgages sound attractive, but they are expensive debt; get it wrong and you can be caught out severely. Annual interest charges, usually between 7% and 8%, compound daily. It is like taking out a big loan and not paying it back for years and years.
How expensive are reverse mortgages? Generally, if you borrow $100,000 at age 65, you will owe around $330,000 by the time you are 80. If you reach 85 and then need to sell your home and go into care, you will owe around $493,000.

Summary – Reverse mortgages in a nutshell

The numbers speak for themselves. They're a good idea if you believe they are convenient for you (want to stay in your home and avoid involving family), but it's a decision which will take a lot of consideration.
Our Reverse Mortgages guide has more details.

Getting divorced before retirement is financially devastating (and near impossible to do during retirement unless you have a big nest egg)

Divorce is rarely cheap, and the closer you are to retirement you do it, the more devastating it is on your finances (unless you have a lot of money you can divide).

The usual divorce process is to sell the home you share, and buy two homes. Your family home will likely form a major part of your mutual assets, and sharing the equity is best done when divorce is amicable. If things are not on good terms, a lot of money can be spent on legal fees. Deciding to sell your family home and split the proceeds can be an emotional barrier, even if it's often the best financial decision. Buying a new property may involve applying for a new mortgage; with the clock ticking until retirement, paying down a mortgage will need to be a top priority. This may leave you without cash savings.

Summary – Divorce and Retirement in a nutshell

Divorce and retirement savings go together like petrol and fire unless properly managed. If you're going to do it, consider doing it as soon as possible rather than wait until you're both less able to earn money. It's not easy; it will be tough but it can be done if both of you keep it civilised.

Mixing family and money, giving away a home for money and other concessions can get complicated and strain relationships

If your plan to transfer your home to your children for a sum of money and in return receive a guarantee of a "home for life", you must have the right legal agreements in place. Sometimes it can go wrong when family relationships sour- this Stuff article discusses once example in detail. Our guide to family trusts may be useful for your succession plans, but legal advice is essential. Remember, sons and daughters have wives, husbands and partners and can be influential in "how things should be". This may mean that informal and unwritten agreements are compromised and your best interests are not the priority.

Summary – Gifting your home to your family in a nutshell

Such a course of action needs careful consideration and legal advice. Avoid setting expectations too high for your children, or underselling your future by giving too much away.

Retirement homes and rest homes are expensive, and you'll need to have savings to make it worthwhile

Retirement village units are not investments. You are NOT buying a house; instead, you are buying into a lifestyle. And you will lose 20% to 30% of your purchase price when the unit is resold. You will also be forced to pay a weekly fee and live by a set of rules. Before making any decision, it's essential to triple-check everything to make sure you understand exactly what you're signing up to. Residents all over New Zealand speak warmly of their retirement village life, but if you get it wrong, it will almost certainly be a very costly mistake.

Summary – Retirement homes in a nutshell

Our retirement village guide outlines the pros and cons, and explains the costs involved. The benefits of retirement villages are extensive, but you need to know what your obligations are.

Some things in retirement are free - New Zealand towns and cities offer plenty of 'free' activities you can do while living a full life in society

Whether you retire with a fortune or next to nothing, you can have an enjoyable life without having to spend money. We are not idealists, so we won't suggest you'll do a thousand new things. That being said, the following are popular activities that retirees enjoy:

Volunteering - transitioning from a workplace to empty days is tough. Having regular hours at a museum, Citizens Advice Bureau, Visitor Information Centre, help out in a local school or similar helps the adjustment to retirement.
Exercising - with no work constraints, time is a luxury, and you can make a commitment to build your fitness.
Taking Classes - there are a number of community activities you can do, but you can also
Joining Clubs - many have low annual fees ($30, $50 etc.) and offer a lot of benefits, including making new friends.

Summary – Free activities in a nutshell

Retirement is a time to relax, and free activities offer a lot of value. Not everything in retirement is about spending money, but having money will let you have far more choices.

You can make money from your home if you're struggling (but it may compromise your lifestyle and sense of self-worth)

Sorted helpfully suggests practical ways to generate income from your home, including renting out a room, taking in a boarder and even selling your home to family. However, most of these require you to own your home. If you rent or sell, such a decision will reduce your freedoms and arguably make your day-to-day less enjoyable if you're independently living. We believe such options should only be considered if you are happy to sacrifice independence for money, and that the income you earn is worth the trade-off. It's very easy to suggest "get a flatmate", but even if this earns you $200 a week, there will be consequences for doing so that may cost more than the benefit.

Summary – Side-Hustle income in retirement in a nutshell

'Easy' money isn't that easy in retirement - whatever you do, it will come at a physical and mental cost which needs to be balanced against the financial gain (remember, you'll be over 65 - things will be harder).

Money in a Nutshell: Next Steps for Retirement Planning

Retirement is long and expensive. If you want more money, your options are limited - few employers will hire you, few lenders will loan to you, and your income from the government is only to cover basic expenses. What we've outlined above will help make you aware of what the future holds. Right now, it's all about saving - joining KiwiSaver if you haven't already, consider bumping up the contributions above 3%, spending less and looking ahead rather than living for today.

If you have any money questions, email our research team - we always welcome questions and helping every New Zealander we hear from.

Related Guides:

Financial Independence Guides: