4.6 Adequacy of income in retirement
This section explores respondents' expectations about their retirement incomes and the level of income they would require to meet their basic needs in retirement and to live comfortably in retirement. The analysis centres on three questions:
- how adequate do respondents expect their retirement income to be?
- how many respondents expected to have a shortfall with respect to basic needs and with respect to being comfortable? and
- what was the extent of the shortfall?
Respondents were first asked if they had thought about financial planning for retirement. Those answering “not at all,” “don't know” or refused to answer were not questioned further about their retirement income expectations and are therefore excluded from the following analysis.
Adequacy of retirement income has to be measured against some reference point. The survey specified two such points. The first was based on asking respondents for an estimate of the income they would need “to have just enough to live on.” The second asked for an estimate of the income needed “to live comfortably in retirement.” The results for both cases are summarised in Table 8.
Respondents were left to self-define what the requirements are for basic and comfortable living and therefore the responses provided will reflect differing sets of expectations as to what is necessary. Additionally, respondents were asked to provide economic family unit-based estimates; that is, if the respondent was partnered at the time of the survey, they were asked to provide figures for the totals required for both themselves and their partner and if the respondent was un-partnered, they were asked to provide figures for themselves only. In order to make figures for partnered and non-partnered respondents comparable, the responses of those who were partnered were multiplied by 60%.
| Variable | Lower Quartile | Median | Upper Quartile |
|---|---|---|---|
| Expected income in retirement ($) | 25,000 | 35,000 | 54,000 |
| Retirement income needed to meet needs ($) | 21,000 | 33,000 | 45,000 |
| Retirement income needed to feel comfortable ($) | 29,600 | 45,000 | 55,000 |
Note:
All dollar values refer to annual incomes.
At each of the three points we examine across the distributions (the lower quartile, median, and upper quartile) income needed to meet basic needs is below the expected retirement income. However income needed for living comfortably in retirement exceeded the income expected in retirement in each case. The minimum level of income expected in retirement was $1,800 by a person who apparently discounted any chance of receiving NZS.
We now consider the extent of any shortfall in expected retirement incomes. Clearly there will be a distribution with some individuals expecting to have an income in excess of the amount they feel they would need either for meeting basic living standards or being comfortable; and there will be another group whose expected incomes in retirement would fall short of one or both of the adequacy targets (see Table 9).
| With respect to amount needed to meet basic needs | With respect to amount needed to be comfortable | |||||
|---|---|---|---|---|---|---|
| Variable | KiwiSaver | Non- KiwiSaver | Combined | KiwiSaver | Non- KiwiSaver | Combined |
Those reporting a shortfall in expected retirement income |
||||||
| Share of total (%) | 8 | 14 | 22 | 23 | 27 | 50 |
| Mean shortfall ($) | -9,900 | -14,100 | -12,600 | -13,900 | -16,200 | -15,100 |
| Median shortfall ($) | -6,000 | -10,000 | -6,800 | -12,000 | -12,000 | -12,000 |
| Average income ($) | 42,000 | 37,900 | 39,400 | 46,200 | 45,200 | 45,700 |
Those reporting an excess of expected retirement income |
||||||
| Share of total (%) | 33 | 45 | 78 | 17 | 33 | 50 |
| Mean excess ($) | +9,200 | +12,000 | +10,800 | +6,100 | +4,700 | +5,200 |
| Median excess ($) | +5,200 | +9,000 | +6,000 | 0 | 0 | 0 |
| Average income ($) | 52,100 | 56,300 | 54,500 | 55,000 | 57,200 | 56,400 |
Note:
The respondents included in this analysis are those aged 25 and over, and who had given some thought to financial planning for retirement. 18% of those over 25 were excluded because they had not thought at all about retirement planning.
With respect to the basic needs threshold, 78% of respondents provided estimates that indicated their income would exceed the amount needed to cover basic needs. This proportion was similarly high for both KiwiSaver members (80%) and non-members (76%).
Of those reporting a shortfall with respect to basic needs, only about a third were KiwiSaver members and their mean shortfall was $9,900 compared to the larger mean expected shortfall of $14,100 reported by the non-KiwiSaver members. It is possible that these non-KiwiSaver members are planning to increase their savings at a later date, rely on an inheritance or simply accept a lower standard of living. However their current mean income was below that of KiwiSaver members: $37,900 compared to $42,000.
Among those expecting a “excess” with respect to basic needs, about 40% were members of the KiwiSaver scheme. The non-members reported a larger expected surplus than members ($12,000 versus $9,200).
Up to this point, factors other than KiwiSaver, which might affect the various measures of retirement income shortfalls/excesses, have not been controlled for. It is of course important to do so in order to guard against the possibility of detecting spurious relationships. This is done in the following section, where we utilize a Heckman selection model, a procedure specifically designed to control for any sample selection bias that may result from survey routing.
