NEW ZEALAND RETIREMENT EXPENDITURE GUIDELINES 2015 1 : The Retirement Expenditure Guidelines 2015 FIRST PUBLISHED NOVEMBER 2015 Workplace Savings NZ is the peak retirement savings industry body, focused on advancing the sustainable, effective and efficient delivery of workplace savings outcomes for all involved. We are a national, not-for-profit, apolitical membership organization. Our membership, which includes corporate, public sector &, industry superannuation funds, KiwiSaver schemes as well as individuals and service providers to workplace savings arrangements, represents over 90% of the approximately 2.7 million New Zealanders with workplace super and/or KiwiSaver membership. Workplace Savings NZ members manage or advise on the bulk of the $42 billion (as at June 2014) in workplace retirement savings assets. The Fin-Ed Centre is a joint initiative between Westpac and Massey University. The Centre aims to empower New Zealanders to make more financially savvy decisions – to give people the tools they need for the life-long process of managing their finances. Key projects include a 20-year longitudinal study that follows 300 New Zealanders to understand their needs for financial knowledge at different life stages, a multi-level certification programme for personal financial educators and the New Zealand Retirement Expenditure Report – a joint initiative between the centre and savings industry body Workplace Savings NZ to establish guidelines for ‘modest’ and ‘comfortable’ retirement. ACKNOWLEDGEMENTS This work is based on/includes customised Statistics New Zealand’s data which are licensed by Statistics New Zealand for re-use under the Creative Commons Attribution 3.0 New Zealand licence. Our thanks to Dr Malcolm Menzies for peer reviewing the report, and providing useful feedback to enhance the report. DISCLAIMER The views expressed in this report are those of the authors and do not necessarily represent the views of Workplace Savings New Zealand or its members, the Fin-Ed Centre, Massey University or Westpac New Zealand Limited. This document is a general guide to retirement expenditure, and should not be relied upon or used as a substitute for professional advice specific to individual circumstances. The author and contributors are not authorised or registered financial advisers. AUTHOR Dr Claire Matthews - Director, Academic Programmes, Massey Business School and Board Member, Westpac Massey Fin-Ed Centre 2 : The Retirement Expenditure Guidelines 2015 Discussions about the affordability and adequacy of NZ Superannuation1, and its predecessors, have been occurring almost continuously since a public pension was first provided in New Zealand. A long and comfortable retirement is now the expectation and experience of most New Zealanders. This report is the fourth in a series that commenced in 20122. The Retirement Expenditure Guidelines are produced to assist New Zealanders with their retirement planning. The Retirement Expenditure Guidelines provide information about levels of expenditure in retirement to assist non-retirees with planning budgets for their retirement, as a foundation from which to calculate the level of savings needed to provide the desired future retirement experience. DATA 3 The data used to prepare the 2015 Retirement Expenditure Guidelines are from the most recent Statistics New Zealand’s triennial Household Economic Survey (HES)4, for the year ended 30 June 2013. The HES does not include the entire New Zealand population; rather it targets the New Zealanders aged 15 years or older that are usually resident in New Zealand and that live in private homes. Although data from the HES is published on the Statistics New Zealand website, it is not in a form considered helpful to a person interested in retirement expenditure. Statistics New Zealand extracted expenditure data from the HES using specifications supplied for that purpose, which have subsequently been adjusted for inflation – initially for the 12 months to 30th June 20145 and now for the 12 months to 30th June 2015. The data extracted are only for retired households, defined as being where one form of income is New Zealand Superannuation, a war pension or other government pension, and grouped according to the number of people in the household and the geographic region in which the household resides. ABOUT THE RETIREMENT EXPENDITURE GUIDELINES6 The New Zealand Retirement Expenditure Guidelines comprise a set of eight expenditure guidelines, to reflect different groups of retirees. The retirement groups are split by geographic location, household size and budget type. It is important to note that the guidelines do not represent suggested or recommended levels of expenditure – they reflect actual levels of expenditure in retired household, as defined above, as determined from the HES. The guidelines have been produced for two geographic-related groupings. The first is the Metro budget, based on data for the Auckland and Wellington Regional Council areas and Christchurch City. The second is the Provincial budget for the rest of New Zealand. Two types of households have been included in the guidelines: the first is the one-person household; and, the other is a two-person household. While it is true that retired households can comprise a range of living arrangements, including households of three or more people, these guidelines cannot cater for every situation. Approximately 80% of all people aged 65+ live in households of one and two persons according to data from the 2013 census7. 1 NZ Superannuation is the universal public pension provided by the government to New Zealanders who attain the age of eligibility, currently 65, and meet residency criteria. 2 Previous editions can be found on the Fin-Ed Centre and Workplace Savings NZ websites. 3 Additional detail on the data used is available in the 2012 report 4 The information about the triennial Household Economic Survey is from the Statistics New Zealand website, and further information is available at http://www.stats. govt.nz/browse_for_stats/people_and_communities/Households/HouseholdEconomicSurvey_HOTPYeJun13.aspx 5 See the June 2014 Retirement Expenditure Guidelines Report 6 The basis for calculating the Retirement Expenditure Guidelines was changed with effect from the 2014 report. Details of the changes are provided in that report. 7 Source: 2013 Census QuickStats about people aged 65 and over. Statistics NZ (available from http://www.stats.govt.nz/Census/2013-census/profile-and-summary-reports/quickstats-65-plus.aspx) 3 : The Retirement Expenditure Guidelines 2015 Finally, two levels of expenditure have been included in the guidelines. The No Frills guidelines reflect a basic standard of living that includes few, if any, luxuries. The Choices guidelines represent a more comfortable standard of living, which includes some luxuries or treats. The No Frills Guidelines are based on the average expenditure of the second quintile of the HES for retired households, while the Choices Guidelines are based on the average expenditure of the fourth quintile of the HES for retired households. The second quintile comprises households in the 21st to 40th percentile for household income, while the fourth quintile comprises households in the 61st to 80th percentiles for household income. The income ranges for the five quintiles, in 2013 figures, are shown below: QUINTILE INCOME RANGE METRO INCOME RANGE PROVINCIAL First Under $22400 Under $24200 Second $22400 to under $32700 $24200 to under $34300 Third $32700 to under $56900 $34300 to under $49600 Fourth $56900 to under $101800 $49600 to under $79000 Fifth $101800 and over $79000 and over RETIREMENT EXPENDITURE GUIDELINES No Frills Choices Data for the HES is collected over a 12-month period and can include expenditure that overlaps two calendar years – no adjustment is made for that difference in coverage. For this report the HES data have been adjusted for the effect of inflation8 between the June 2013 quarter and the June 2015 quarter. EXPLANATORY NOTES yy These guidelines do not represent recommended levels of expenditure. yy The levels of expenditure shown in the guidelines may be used to assist in the development of projected retirement budgets, by providing information about actual levels of expenditure in retired households in standard expenditure categories. yy The guidelines are based on averages for quintiles. yy There are too few responses for spending in some expenditure sub-classes to permit reliable estimation; however, these responses can be included in the class estimation where there are more responses. As a result the classes are not always the totals of the sub-classes. yy The HES, on which the guidelines are based, relies on participants to accurately record their expenditure, and is only for a two-week period, which may not represent a typical fortnight for that household. yy The guidelines should not be used as a substitute for professional advice specific to individual circumstances. yy There is no retirement age in New Zealand, but the age of eligibility for NZ Superannuation (currently 65) is commonly used as a proxy for this. The definition of a retired household follows from this, as being one where one form of income is New Zealand Superannuation, a war pension or other government pension. However, it is recognised that a retired household may include one or more persons who are still working part-time or even full-time. 8 CPI information and data was sourced from http://www.stats.govt.nz/browse_for_stats/economic_indicators/CPI_inflation.aspx An overall CPI figure is calculated by Statistics New Zealand, as well as CPIs for the constituent groups and subgroups. The HES data have been adjusted for the effect of inflation using the appropriate group and subgroup CPIs. 4 : The Retirement Expenditure Guidelines 2015 THE NEW ZEALAND RETIREMENT EXPENDITURE GUIDELINES ONE PERSON HOUSEHOLDS, EXPENDITURE PER WEEK NO FRILLS METRO FOOD CHOICES PROVINCIAL METRO PROVINCIAL   77.00   72.73   133.37   Fruit and vegetables 12.79   13.59   22.33   17.48   Meat, poultry and fish 14.60   12.81   28.12   19.34   Grocery food 30.05   31.80   51.22   46.78   3.99   3.82   10.97   4.27   15.37   10.36   20.37   20.61     10.02   4.97   34.98   19.71 8.65   3.91   30.88   18.14   ..S9   ..S   ..S   ..S   Non-alcoholic beverages Restaurant meals & ready-to-eat food ALCOHOLIC BEVERAGES, TOBACCO AND ILLICIT DRUGS Alcoholic beverages Cigarettes & tobacco CLOTHING AND FOOTWEAR Clothing HOUSING AND HOUSEHOLD UTILITIES 108.94   24.24   5.10   ..S   37.55 17.36   4.44   ..S   30.49     136.53   122.24   199.54   205.74 ..S   19.07   ..S   ..S   6.25   14.43   ..S   Property rates & related services 39.28   39.92   75.64 Household energy 37.89   30.74     36.72   19.68 13.83   8.59   ..S   ..S   Actual rentals for housing Home ownership HOUSEHOLD CONTENTS AND SERVICES Furniture, furnishings & floor coverings Household textiles 63.37     39.09   38.63   40.59     54.91   48.11 30.91   13.05   ..S   7.06   10 Household appliances 9.45   4.41   ..S   15.43   Glassware, tableware & household utensils 2.21   ..S   ..S   ..S   Other household supplies & services 5.25   4.78   6.76   6.37   23.13 HEALTH Medical products, appliances & equipment Out-patient services TRANSPORT Purchase of vehicles Private transport supplies & services Passenger transport services COMMUNICATION (TELECOMMUNICATION) Telecommunication services   36.99   21.62   41.10   5.07   4.06   ..S   8.90   32.12   17.62   14.72   11.10   92.46   34.62   45.18   112.22   ..S   ..S   ..S   ..S   24.46   24.89   42.18   42.78   8.76   5.19   27.72   2.64     22.54   18.69   25.17   23.35 22.24   18.18   25.21   23.58     54.87   45.24   42.42   92.69 Audio-visual & computing equipment 4.52   8.27   ..S   2.49   Other recreational equipment & supplies 6.46   6.79   9.51   11.45   17.12   20.03   17.21   52.51   Newspapers, books & stationery 9.25   7.00   10.71   9.00   Accommodation services 4.63   ..S   ..S   ..S   Miscellaneous domestic holiday costs RECREATION AND CULTURE Recreational & cultural services 0.86   0.56   ..S   1.32   EDUCATION   ..S   ..S   ..S   ..S MISCELLANEOUS GOODS & SERVICES   49.58   43.88   110.32   86.61 10.03   6.71   19.56   16.86   4.87   1.10   ..S   6.51   32.88   29.17   76.23   46.84   0.42   0.23   1.39   1.77   OTHER EXPENDITURE   6.65   19.58   ..S   43.73 Interest payments ..S   12.54   ..S   23.59   Contributions to savings ..S   ..S   ..S   ..S   Expenditure incurred whilst overseas ..S   2.05   ..S   3.78 Personal care Personal effects nec Insurance Credit services TOTAL 9 489.77 418.91 11 754.03   782.02 …S indicates that too few households reported spending in that category to permit reliable estimation 10 The figure for Home Ownership for the Choices budget for Provincial One-Person Households has been adjusted, because the original figure of $351.77 was clearly an outlier relative to figures for this class for other categories, and appears to have been distorted by very high expenditure levels for a small number of respondents 11 The figure for Miscellaneous Goods & Services for the Choices budget for Metro One-Person Households has been adjusted, because the original figure of $238.62 was clearly an outlier relative to figures for this class for other categories and the total of the sub-classes, and appears to have been distorted by very high expenditure levels for a small number of respondents. 5 : The Retirement Expenditure Guidelines 2015 TWO PERSON HOUSEHOLDS, EXPENDITURE PER WEEK NO FRILLS METRO FOOD CHOICES PROVINCIAL METRO PROVINCIAL   119.72   137.53   187.76   Fruit and vegetables 20.33   22.21   29.38   24.12   Meat, poultry and fish 26.78   21.88   35.23   35.17   Grocery food 47.91   61.29   61.06   67.63   7.35   8.55   10.89   11.23   16.91   22.94   51.28   34.99   33.31 Non-alcoholic beverages Restaurant meals & ready-to-eat food ALCOHOLIC BEVERAGES, TOBACCO AND ILLICIT DRUGS Alcoholic beverages Cigarettes & tobacco CLOTHING AND FOOTWEAR Clothing HOUSING AND HOUSEHOLD UTILITIES Actual rentals for housing Home ownership 173.57   6.09   17.97   29.17   5.60   14.01   25.58   26.00   ..S   3.20   ..S   5.90     4.85   13.83   31.57   18.30 4.86   9.17   27.60   15.85   166.57   163.81   144.25   254.74   73.19   ..S   ..S   ..S   ..S   31.54   73.70   32.66   Property rates & related services 23.97   36.82   60.60   45.88   Household energy 37.79   43.65   46.62   57.32   49.76 HOUSEHOLD CONTENTS AND SERVICES   32.61   39.65   43.34   Furniture, furnishings & floor coverings ..S   14.29   14.37   14.41   Household textiles ..S   5.07   1.80   2.53   Household appliances ..S   6.48   3.34   7.55   Glassware, tableware & household utensils ..S   1.59   1.79   2.10   5.33   6.57   13.62   10.03   60.92 Other household supplies & services HEALTH   13.50   47.99   72.75   Medical products, appliances & equipment 5.91   20.97   15.53   10.73   Out-patient services 7.42   25.94   56.97   49.81   165.97 TRANSPORT Purchase of vehicles Private transport supplies & services Passenger transport services COMMUNICATION (TELECOMMUNICATION) Telecommunication services RECREATION AND CULTURE Audio-visual & computing equipment Other recreational equipment & supplies   42.98   84.98   129.40   ..S   ..S   29.26   46.33   29.06   52.20   70.36   71.52   6.80   6.97   29.77   47.90     22.35   20.20   33.44   28.07 21.63   18.52   31.18   27.01   151.78   53.07   73.68   141.96   ..S   2.71   10.23   7.35   8.73   14.61   17.74   27.99   Recreational & cultural services 25.91   30.82   68.09   48.88   Newspapers, books & stationery 5.42   11.41   14.15   20.46   Accommodation services ..S   10.80   9.66   17.27   Miscellaneous domestic holiday costs ..S   1.48   3.55   6.56     ..S   ..S   ..S   1.28 121.05 EDUCATION MISCELLANEOUS GOODS & SERVICES   42.14   76.72   129.25   Personal care 9.76   15.55   24.45   23.01   Personal effects nec 2.37   6.01   7.61   7.00   28.77   48.84   91.99   83.15   0.48   3.51   2.27   3.43   41.75 Insurance Credit services OTHER EXPENDITURE   21.81   21.02   38.39   19.08   6.87   10.93   21.31   Contributions to savings ..S   7.75   15.17   11.76   Expenditure incurred whilst overseas ..S   4.78   11.47   7.50     522.93   677.83   1091.77   1012.32 Interest payments TOTAL 6 : The Retirement Expenditure Guidelines 2015 WHAT DO THE 2015 RETIREMENT EXPENDITURE GUIDELINES TELL US? While we cannot compare the guidelines back to the first report in 2012 due to the change in methodology discussed in the 2014 report, we can consider how the total level of expenditures has changed since 2013 for each of the guideline groups. TOTAL WEEKLY EXPENDITURE 2013 One-person households Two-person households 2014 2015 PERCENTAGE CHANGE 2013-2015 No Frills – Metro 480.99 487.68 489.77 1.83% No Frills – Provincial 411.75 417.82 418.91 1.74% Choices – Metro 739.81 752.05 754.03 1.92% Choices – Provincial 769.58 780.16 782.02 1.62% No Frills – Metro 513.26 521.15 522.93 1.88% No Frills – Provincial 667.19 676.62 677.83 1.59% Choices – Metro 1073.55 1088.67 1091.77 1.70% Choices – Provincial 1000.27 1012.94 1012.32 1.20% Of note is the difference in the increase in expenditure between the eight guideline groups. This difference reflects the different weightings of classes of expenditure within the guideline groups, which also helps explain the small reduction in total weekly expenditure for the Choices – Provincial Two-person Household group. For this household group the small decrease appears to be due to transport-related expenditure representing a higher relative proportion of total expenditure (16.4%) as at 30th June 2015, compared to the other Two-person Households (8.2% – 12.5%). The CPI figure for the transport class for the 12 months to 30th June 2015 was -4.3%, compared to the overall CPI figure of 0.4% for that period. It is helpful to compare these expenditure totals with the rates of NZ Superannuation. On 1st April 9 2015, New Zealand Superannuation rates increased by 2.07%12 , and the two key rates increased 13 10 to : Single, living alone $374.53 per week after tax at the M rate Couples, both qualify $576.20 per week after tax at the M rate Overall, the CPI inflation rate for the two years to 30th June 2015 was 2.01%, while the increase in NZ Superannuation was 4.79%. COMPARISON OF INFLATION AND NZ SUPERANNUATION INCREASES 2013 2014 2015 CPI Inflation to 30th June 0.90% 1.60% 0.40% Increase in NZ Superannuation as at 1st April 2.44% 2.66% 2.07% It is important to recognise that the overall CPI inflation rate hides substantial differences in inflation between expenditure classes. For example, while the total CPI inflation rate for the twelve months to 30th June 2015 was 0.4%, for the Housing and Household Utilities expenditure class it was 2.5%, while for the Communications expenditure class it was -5.3%. The importance of this difference can be seen in the relative level of expenditure for the different classes. For example, the Housing and Household Utilities expenditure class represents 31.3% of expenditure for the No Frills – Metro Two-person Household group compared to 4.3% for Communications for that group in the 2015 Retirement Expenditure Guidelines. 12 Source: http://www.workandincome.govt.nz/about-work-and-income/news/2015/benefit-rates-changes.html 13 Source; http://www.workandincome.govt.nz/individuals/brochures/benefit-rates-april-2015.html#NZSuperannuationandVeteranrsquosPension14 7 : The Retirement Expenditure Guidelines 2015 GAP BETWEEN GUIDELINES AND NZ SUPERANNUATION 2015 One-person households Two-person households NZ SUPER GAP No Frills – Metro 489.77 No Frills – Provincial 418.91 Choices – Metro 754.03 Choices – Provincial 782.02 No Frills – Metro 522.93 53.27 No Frills – Provincial 677.83 -101.63 Choices – Metro 1091.77 Choices – Provincial 1012.32 -115.24 374.53 -44.38 -379.50 -407.49 576.20 -515.57 -436.12 As the table above shows, it is clear that over-65s households need additional income, as NZ Superannuation is insufficient to meet identified levels of expenditure, with the exception of the No Frills – Metro Two-person Household group. That additional income could include government 14 allowances such as the accommodation supplement, but it is likely to also require personal savings to provide on-going income. Calculations using Sorted’s Retirement Planning calculator11, reported in the 2014 Retirement Expenditure Guidelines report, suggested a lump sum of $111, 255 would be needed by a single person living in a Metro area wanting a No Frills lifestyle, while a couple in a provincial area wanting a No Frills lifestyle would need $98,832. WHAT CAN I BUY BASED ON THE 2015 RETIREMENT EXPENDITURE GUIDELINES? In the original 2012 report, we considered what the expenditure levels actually meant in practical terms. In this report, it seems timely for a reconsideration to provide context for the numbers. The starting point of this reconsideration below is on the No Frills expenditure levels, since they impose greater limitations on lifestyle; however, there is also some consideration of the Choices expenditure levels. The examples are illustrative only, as actual expenditure would reflect individual preferences. Food comprises 14-17 per cent of the total expenditure for the one-person households and 17-23 per cent for the two-person households, making it one of the more substantial expenditure categories. Grocery food, which excludes fruit and vegetables, makes up nearly half of this category. For oneperson households, the No Frills Metro guideline includes $30.05 for Grocery food, plus $14.60 for Meat, poultry and fish, and $12.79 for Fruit and vegetables, while for the Choices Metro guideline 15 the equivalent figures are $51.22, $28.12 and $22.33. At $21.9912 per kg sirloin steak is probably not going to be on the No Frills menu, since the weekly Meat, poultry and fish budget would only purchase about 660 grams, enough for 2-3 meals. Chicken stir-fry, at $12.99 per kg, may be a better option offering nearly 1.2 kilograms, which would be sufficient for 4-5 meals. The Choices Metro guideline would allow more options, being nearly twice the expenditure level: say 400gms of sirloin steak ($8.80), 600gms of chicken stir-fry ($7.79), 500gms of sausages ($7.15) and 500gms of lamb chops ($4.00). The Fruit and vegetables options under the No Frills Metro guideline for one-person households look more reasonable, with two heads of broccoli for $3, a 1.5kg bag of apples for $3.49, a ready-mix salad for $2.99 and a 1kg bag of frozen mixed vegetables for $2.79 making a total of $12.27. The Choices Metro guideline allows for nearly $10 more expenditure, which would potentially allow more ‘exotic’ fruit and vegetables to be purchased, while placing less emphasis on seasonal availability, which can substantially affect prices. So under the Choices guideline we could add a pineapple ($2.99), 200gms of mushrooms ($1.80) and three capsicums ($5) for a total of $22.06. 14 https://www.sorted.org.nz/calculators/retirement 15 The prices used for the discussion of food expenditure are taken from the New World weekly mailer for 21-27 September 2015. 8 : The Retirement Expenditure Guidelines 2015 The Other Grocery food under the No Frills Metro guideline could include two cans of soup ($5), a packet of 100 tea bags ($3.59), a box of cereal ($3.99), a jar of peanut butter ($3.49), two loaves of bread ($5), a 500g packet of pasta ($1.99), a 500g pack of margarine or butter ($2.99) and a packet of biscuits ($3.49), for a total of $29.54. Obviously some of those items would last more than a week, but even taking that into account the shopping list indicates restrictive options. Spending under the Choices guideline we could add a cheese & bacon ciabatta ($3.99), spaghetti and baked beans (four cans for $5), jam ($4.49), a 3-litre bottle of fruit juice ($3.99) and a six-pack of yoghurt ($3.49) for a total of $50.50. Another important category of household spending is Housing and household utilities. This comprises 23-29 per cent of total expenditure for the one-person households and 16-31 per cent for the two-person households. Household energy represents 18-34 per cent of the costs in the Housing and household utilities category, or 4-8 per cent of total costs. We’ll compare Household energy expenditure for two-person households. This comparison is restricted to electricity as a simplification. For the purposes of this comparison, we have used 16 Mercury Energy’s prices for its Good Energy Plan13 , which includes a fixed daily charge of $2.68 per week. Like most energy companies Mercury Energy offers a prompt payment discount (in this case 10%), and the comparison assumes that this is being received. Based on Mercury Energy prices, a Metro household spending at the No Frills level uses an average of 130.4kWh per week, which increases to 163.2kWh for the Choices level of expenditure. A Provincial household spending at the No Frills level uses an average of 153.6kWh per week, increasing to 204.5kWh at the Choices level. The following table provides an estimate of weekly kilowatt hours (kWh) used by different electrically powered items, and shows which can be used within the Household energy expenditure class. It is important to note that energy use is difficult to compare, because prices vary between providers and is very dependent not just on the type of electrical equipment being used, but also on the specific appliances that are being used COMPARISON OF ELECTRICITY EXPENDITURE ELECTRICAL ITEM USAGE DETAILS17 NO FRILLS (KWH) METRO Hot water cylinder* 3800 watt @ 3 (4) hours per day Fridge/freezer# 250l (400l) fridge & 120l (250l) freezer CHOICES (KWH) PROVINCIAL METRO PROVINCIAL 80.0 80.0 106.0 106.0 6.6 6.6 10.4 10.4 Washing machine 5.5kg capacity @ 4 cold (7 warm) washes per week Oven* 1 hour per day Television# 42 (52) inch screen @ 3 (5) hours per day 1.3 1.3 3.1 3.1 Kettle* 1 hour per day (based on coffee maker) 6.3 6.3 6.3 6.3 CFL 60W equivalent - 4 lights @ 2 (4) hours per day 1.2 1.2 2.0 2.0 2.5 # Lights* 0.6 0.6 6.0 6.0 14.0 14.0 14.0 14.0 Computer 17 (24) inch monitor @ 2 (4) hours per day 2.1 2.1 2.5 Clock/radio* Two (for a two-person household) 1.4 1.4 1.4 1.4 Toaster* 15 minutes per day 2.5 2.5 2.5 2.5 Microwave* 30 minutes per day 5.0 5.0 5.0 5.0 Heat pump# 5kW output heat pump, with average use of 5 hours per day n.a. 30.5 n.a. 30.5 14-place setting capacity @ 5 times per week n.a. n.a. n.a. 4.5 *# Dishwasher# Clothes dryer # 5kg capacity @ 2 uses per week for half of year n.a. n.a. n.a. 3.7 TOTAL KWH (AVAILABLE PER GUIDELINE EXPENDITURE) 121.0 (130.4) 151.5 (153.6) 159.2 (163.2) 197.9 (204.5) 1. Items denoted by * have had their energy used calculated using a calculator available at http://michaelbluejay.com/electricity/, while items denoted by # have been calculated using a calculator available at https://www.energywise.govt.nz/tools/running-costs-calculator/#/ 2 n.a means that there is no room in the electricity budget to allow use of this item 16 Mercury Energy has been used as their rates appear to be in the middle of the range of prices charged, based on information available on the Consumer Powerswitch website (https://www.powerswitch.org.nz/powerswitch/price-trends/providers). At the time of the calculation Mercury Energy had a daily charge of 0.3333c+GST. For a Palmerston North property (Provincial), the Good Energy Plan had a kWh charge of 0.2594+GST, while for a property in the Hillsborough area of Auckland (Metro) the kWh charge was 0.2601+GST. 17 Where the usage shows two different situations, the first represents the No Frills usage level and the second in brackets represents the Choices usage level. 9 : The Retirement Expenditure Guidelines 2015 Of note in the above table is that Metro households have almost used up their energy budget before anything is spent on heating. Under the No Frills guideline, the Metro household has available to it less than one-third of the Provincial households’ spending on heating. The Choices Metro guideline capacity for spending on heating is less again, but it does have more flexibility because it includes higher usage in some categories such as the fridge/freezer, which could be reduced to enable more heating expenditure to be included. Insurance is a sub-class of expenditure that represents a relatively substantial portion of total expenditure, representing 5-9 per cent across all the guidelines. In dollar terms, the weekly expenditure on insurance ranges from $28.77 to $91.99. Some insurance can be seen as optional, such as health insurance, while other insurance, like home and contents insurance, is often viewed as a necessity. This was clearly illustrated in the survey reported in the 2012 Retirement Expenditure Guidelines report, which found 93% of retirees had contents and car insurance, while only 35% had medical/health insurance and 27% had life insurance. 18 The house, contents and car insurance costs have been calculated using Trade Me Insurance14 , for a two-person household in Palmerston North and then in the Hillsborough area of Auckland. The first comprehensive car insurance quote used a 2010 Toyota Corolla GX Auto 4-speed sedan with a 1.8 litre engine, valued at $10,000, with a male driver of 70 and a female driver of 67. For the second quote the car became the 2013 model of the same vehicle with a value of $20,000. The cost for house insurance is based on a 250 square metre owner-occupied brick home with a tile roof, with a cost to rebuild of $500,000. The price for contents insurance is based on a value of $150,000, with no specified items (which can significantly affect the premium). Both the House and Contents assumed an owner-occupied home, with the oldest insured person aged 70, and no recent claims history. The cost was calculated using different excesses to compare the costs. It is important to note that none of the quotes included any discounts, such as those commonly available for multiple policies with the same company or having an alarm system, so the prices could be reduced further. However, not everyone would be happy with the large excesses, and reducing the excesses would increase the premiums. In addition, there may be personal circumstances, such as a recent claims history, which would also increase the premiums. In addition, we considered the cost of funeral plan cover, which is a type of insurance that can be more useful for older people. The cost of cover was calculated for the Golden Life Plan from Golden 19 Life insurance15 . As the table shows a Metro two-person household is limited to house and contents insurance with the maximum excesses if insurance spending is at the No Frills guideline. Increasing insurance spending to the Choices guideline allows car insurance and funeral plan insurance for both to be included and also allows a reduction in the excess on the house and contents insurance. The difference between the two spending levels is not quite so marked for the Provincial two-person household, but there is certainly more cover and lower excesses at the Choices expenditure level. 18 https://www.trademeinsurance.co.nz/ 19 http://goldenlife.co.nz/nzg/GLCalcQuote 10 : The Retirement Expenditure Guidelines 2015 COMPARISON OF INSURANCE EXPENDITURE PROVINCIAL NO FRILLS House $2500 excess CHOICES 19.00 10.42 14.83 16.74 8.43 11.74 $10,000 22.62 22.62 $5,000 9.46 $10,000 7.18 $20,000 Funeral - 67 yo female 23.38 9.28 $250 excess Funeral - 70 yo male CHOICES 24.50 $1000 excess Comprehensive car NO FRILLS 19.84 $1000 excess Contents METRO $5,000 12.23 $10,000 TOTAL ($PER WEEK) 17.08 48.53 79.84 29.42 91.56 It is not practical to do this comparative exercise for all the expenditure categories, but these three examples for important expenditure groups provide a clear illustration of the everyday differences that exist between spending at a No Frills level or at a Choices level. In particular, it highlights some of the restrictions that are faced by households spending at a No Frills level. SUMMARY AND CONCLUSIONS This report has found that for almost every type of New Zealand household and level of expenditure surveyed, there is a gap between expenditure by people aged 65+ and the income provided by New Zealand Superannuation. The only exception is the No Frills – Metro Two-person Household group. It can be concluded that most New Zealanders will need to save through their working lives if they aspire to a better standard of living in retirement than NZ Superannuation alone can support. The guidelines contained in the report can be used as input to planning for retirement income. For example, the size of the weekly gap between NZ Superannuation and a particular level of expenditure might be multiplied to calculate a “ball park” savings target for a given length of retirement. Targets derived this way can range from zero to several hundred thousand dollars. However, this crude method does not take into account individual factors such as existing savings, time to retirement and life expectancy, nor inflation, fees and interest. A more sophisticated approach is to feed desired retirement expenditure levels into a retirement planning calculator such as the one found at https://www.sorted.org.nz/calculators/retirement. Alternatively, those planning their retirement income can consult an Authorised Financial Advisor (see http://fma.govt.nz/consumers/getting-financial-advice/). Whatever path is taken, we hope that the guidelines contained in this report will be of assistance to New Zealanders as they plan for their retirements. 11 : The Retirement Expenditure Guidelines 2015