3.3  Living standards

Standard of living was rated on two different scales. The first was self-assessment of the level of their material standard of living, while the second assessed the respondent's satisfaction with their living standards. Both measures are depicted in Figure 3. Just over half of both groups consider their standard of living to be at medium level, with more of the working group then the retired group rating their standard as high. Around the same percentage of the working and retired groups consider their living standard to be low. The results for respondent’s satisfaction are very similar for all categories across the retired and working groups. These findings are consistent with those from a national survey in which only 8% of those over 65 years old reported any degree of hardship Jensen et al (2006).

The proportion of both the working and retired groups who regard their living standard as low or expressed dissatisfaction with their standard of living is typically less than 10%. This accords with the results of Fergusson et al (2001: Table 9) who reported that among older New Zealanders, 10% of singles and 5% of couples assessed their living standard as low or fairly low.

Respondents were asked how they expected their living standards might change when they retire. For those actually retired the question related to the perceptions of living standards as they approached retirement; ie the working group was asked: “How do you expect your living standards to change when you retire?” while the retired group was asked: “How did you expect your living standards to change when you retired?” The results are shown in Figure 4 (Panel a). Respondents were also asked how they saw their future retirement years in comparison to their working years, with the results in Figure 4 (Panel b). It is not immediately clear how retired people would view this question.

Figure 3: Standard of living

Source:  Health, Work and Retirement Survey

Only a very small proportion of either the working or retired group anticipated a rise in their living standards at retirement. Over 40% of both groups expected their living standards to decline. Yet while they anticipated a decline, the majority of those actually retired expressed satisfaction with their living standards in retirement (Figure 3). This implies that in planning for retirement a large proportion of people expect to take a fall in living standards, but as it was anticipated, they do not subsequently express dissatisfaction when they actually experience a drop in living standards. An alternative explanation could be that the actual fall in living standards was less than anticipated.

The willingness to accept a fall in living standards may influence their decision to leave the workforce or reduce their hours. Those wishing to maintain a standard of living in retirement closer to that enjoyed in their working years could be expected to have higher rates of labour force participation.

However the results in Figure 4 (Panel b) provide an interesting contrast. The vast majority of respondents (around 80%) did not expect to see a fall in their living standards in future retirement years. This suggests that people adjust their expectations of living standards to match the reality of their circumstances.

Figure 4: Expected changes in living standards

Source:  Health, Work and Retirement Survey

One way to summarise the overall standard of living is through the use of an Economic Living Standards Index (ELSI). A short form of this index is designed

to measure levels of consumption, social activity, and asset ownership, rather than the economic resources that enable them. The scale assesses restrictions in ownership of assets (8 items), restrictions in social participation (6 items), the extent to which respondents economise (8 items), and a self-rated indicator of standard of living (3 items). The ELSI-SF scores on each of the items were combined to form a continuous variable ranging from 0 to 31 (higher scores reflect higher economic living standards) and as an ordinal variable with 7 levels from severe hardship to very good.[9] (Stephens et al, 2008)

Figure 5 summarises the distribution of the ELSI for the working and retired groups. While the working group has a little higher mean value (23.7) than the retired (22.9) (not shown on the figure), the medians were in fact the same and the overall range is broadly similar. Were it the case that ELSI were a truly objective measure, then this result would provide support for the argument that the actual fall was minimal. In contrast, if ELSI is viewed as a more subjective measurement, then this would tend to lend support to the argument that people adjust their expectations.

Figure 5: Economic Living Standards Index

Source:  Health, Work and Retirement Survey