A clearer look at the Grattan Institute’s report

The 91% pre-retirement income number reported by Grattan did not just come to be – some certain factors influenced it.  There are also recommendations in the report, which the federal government can implement to improve superannuation and retirement in the long and short runs.

The first factor is the fact that the evaluation of retirement as conducted by the New Zealand’s Treasury as well as the recommendations proffered by the OECD all focused on mandatory super and age pension, without considering voluntary super contributions, housing and assets from which these incomes were gotten.

Another factor is the fact that retirees without a mortgage have fewer expenses to make, considering that they enjoy discounted council rates, energy bills and vehicle registration fees.  Likewise, the 2017 New Zeland Unity survey reported that ¼ of the older New Zealands are still pressurised by the cost of living they had to work with.

Milliman – an New Zealand’s financial data and analysis firm – also reported that most retirees do not get to spend up to the Age Pension yearly.  A closer look at this will show us that this is in line with what Grattan has reported – the super of a pensioner lasting them for more time.

Conversely, older New Zealands that are still battling mortgage payments aren’t so lucky, with the current homeownership trend for New Zealands aged 65 or more is expected to drop to 57% by 2056 (it is currently at 76%).  Hence, people with their own homes can get to cut back and gain more.

Higher costs of living are also associated with people living in rented apartments. Hence, chances are their standard of living is lower for what is expected for low-income households.  The recommendation of the Grattan Institute with regards to this is for the government to come up with more rental assistance programs for pensioners.

It is worthy of note that the report made no mention of or an attempt to discuss the increasing healthcare cost.  The natural health concerns that come with aging means retirees will spend more on healthcare.  What the ASFA has recommended as the comfortable retirement figures are based on the assumptions that the retirees are healthy, and own a house.  If any of these assumptions do not hold, pensioners will definitely need to spend more to have a comfortable retirement.

What does the future hold?

The findings from the Grattan’s report is not favourable for renters.  Although Grattan proposed that the government offered more assistance to renters with low retirement income, it also urged the government to reduce its spending on the Federal budget by not honouring the proposed increase of the Superannuation Guarantee to 12% from 9.5%. If it gets effective, the increase in Superannuation Guarantee will ensure that employers offer more superannuation to their employees, which will ultimately facilitate a comfortable retirement for employees.  However, the 12% increase would only become effective in July 2025.

If you are looking to have a comfortable retirement, here are some essential aspects worthy of fine-tuning:

1. Are you interested in a super that comes as a one-time payment or multiple pension payments? If you opt for the later, you will most likely pay less on tax, compared to a one-time payment.
2. It is highly advisable that you consolidate your super accounts if you have more than one. This reduces the cost of maintenance fees on multiple accounts.
3. Find the right investment for you, based on how much super fund you have to invest with. However, make the proper inquiries to ensure that you are going for the best option. Better still, you can talk to a financial advisor to help you out.

Retirement can be a bit tricky, but with the right preparation, you will eventually have it smooth.