The Future of Retirement in New Zealand Ft. Retirement Commissioner Jane Wrightson Episode 212

The Aging Population Crisis

• New Zealand’s population is aging at an unprecedented rate, putting increased pressure on government services, healthcare, and housing. By 2050, it’s expected that one in four New Zealanders will be over the age of 65. This demographic shift raises serious questions about how well-prepared our society is to provide for its aging citizens.
• In this new landscape, traditional models of retirement are being questioned. More people are entering retirement without owning a home or enough savings, which shifts the financial burden onto both individuals and the state. As we all grow older, the cost of care and living arrangements becomes a bigger part of the conversation.

Increased Life Expectancy and Financial Planning

• With the average life expectancy rising, people are now living longer than previous generations. This means that our retirement savings need to stretch further. A retirement lasting 20 or even 30 years is no longer unusual, meaning that careful financial planning is essential if we want to maintain a good quality of life during these later years.

The Disappearing “Million-Dollar House”

• Today’s housing market looks vastly different from what it did 20 or 30 years ago. What was once considered the “million-dollar house” has now become a standard home price in many parts of New Zealand. As a result, owning property is becoming increasingly unattainable for many.
• For those planning their retirement, the housing stock currently being built doesn’t always match the needs of an aging population. We see multi-story townhouses being developed, but these homes may not be suitable for people with mobility issues, creating a gap in appropriate housing options. On top of that, councils and charities that once provided pensioner flats are pulling back, further narrowing the pool of affordable retirement living options.

Alternatives to Traditional Housing: Retirement Villages

• Retirement villages are gaining popularity as an option for older Kiwis, providing the convenience of maintenance-free living and a community environment. However, the costs associated with retirement villages can be prohibitive for many, as these options are often only available to those who have accumulated significant wealth over their lifetime.
• For retirees who can afford it, these villages offer a simplified lifestyle, with predictable costs and fewer responsibilities, allowing them to focus on enjoying their retirement years. But for many New Zealanders, the entry costs and fees associated with these villages are simply out of reach.

Is Superannuation at Risk?

• There is growing concern that New Zealand’s superannuation system may not be sustainable in the long run. With an aging population, the cost of providing pensions is expected to increase significantly. By 2050, it’s projected that superannuation will cost about 6.5% of GDP.
• While this may sound like a significant amount, many experts believe that with the right planning, the country can handle this financial burden. The key question we need to ask ourselves is what kind of society we want to live in. Should we prioritise financial sustainability at the expense of the older generation, or should we ensure that everyone can retire with dignity?

The Role of KiwiSaver in Retirement Planning

• KiwiSaver has become an essential part of the retirement planning process for many New Zealanders. Since its introduction, the program has gained widespread acceptance, and it’s now seen as a critical tool for building retirement savings. For most of us, KiwiSaver offers a stable and reliable way to ensure we have enough money set aside for when we stop working.
• One of the key advantages of KiwiSaver is the ability to access funds to purchase a first home. This has made homeownership more accessible for younger generations, while also providing a stable financial future. However, some critics argue that using KiwiSaver for housing undermines its primary purpose as a retirement savings tool. For those of us looking to retire comfortably, contributing regularly to KiwiSaver and seeking professional financial advice is crucial.

Where to Turn for Help

• Navigating the complexities of retirement planning can be overwhelming. Whether we’re unsure about how much we need to save, or we’re uncertain about the best investment strategies, getting the right advice is essential. While financial advisers can be incredibly helpful, not everyone feels comfortable seeking professional advice due to costs or concerns about biased recommendations.
• Fortunately, there are excellent free resources available. Sorted.org.nz is one such platform that offers tools to help us manage our finances and plan for the future. Whether we’re comparing KiwiSaver providers, calculating mortgage payments, or working on a budget, Sorted can guide us through the process without the pressure of being sold a product.

Building Financial Literacy from a Young Age

• It’s never too early to start learning about financial management. Unfortunately, many New Zealanders reach adulthood without a clear understanding of personal finance. Schools often overlook financial education, leaving many people to figure things out as they go. Encouraging younger generations to engage with their finances, set long-term goals, and learn about saving and investing can lead to better financial outcomes down the road.

Making KiwiSaver Work for Us

• Despite early skepticism about KiwiSaver, the system has proven itself as a robust, long-term solution for retirement savings. Contributions from employers and the government’s annual member tax credit help us grow our savings steadily over time. However, if we’re serious about securing our future, we need to make sure that we’re contributing as much as we can. A good rule of thumb is to aim for at least 10% of our income to be set aside for retirement.

Potential Improvements to KiwiSaver

• There are still some areas where KiwiSaver could improve. One suggestion is to increase the default contribution rate for employees. Currently, the minimum contribution is 3%, but this might not be enough to provide a comfortable retirement. Raising this default to 6% or even 10% would ensure that more people are putting away adequate savings without needing to actively opt-in to higher rates.

Retirement may seem like a distant concern, but the sooner we start planning, the better prepared we’ll be for the financial challenges that lie ahead. Whether it’s keeping a close eye on the housing market, making informed decisions about KiwiSaver, or seeking independent advice on budgeting and investing, there are plenty of ways we can take control of our financial future.

By making smart decisions today, we can ensure that we’re well-prepared for whatever retirement may bring.

1. Housing challenges for retirees: The current housing stock may not meet the needs of an aging population. Consider alternative options like retirement villages, but keep costs in mind.
2. KiwiSaver is essential: Make the most of KiwiSaver by contributing regularly and focusing on long-term growth. Don’t be afraid to seek independent advice.
3. Financial literacy is key: Use free resources like Sorted.org.nz to educate yourself on financial planning and build strong habits early on.
4. Superannuation is sustainable with the right planning: While the costs are expected to rise, proper planning can ensure the system remains intact for future generations.

With the right approach, we can all work toward a secure and comfortable retirement.