The NZ Society of Actuaries has produced this research paper.
Good quality stuff. The reports says those in retirement spend less than previously thought, impacting on saving assumptions
Summary
This RIIG report urges those planning for or managing income in retirement to consider how spending patterns can be expected to change throughout the duration of retirement.
What is assumed on this has a direct and significant effect on calculations of how much people should save to meet a retirement income target and on how much they can safely draw down while in retirement.
Spending patterns change through retirement
• International and local evidence suggests a reduction in real (inflation-adjusted) spending through retirement is likely for many New Zealand retirees.
• Analysis suggests a typical scenario for New Zealand retirees is that real spending reduces by around 2% a year, that is, retirees’ spending growth is below general price inflation by that amount for each year after age 65 or full retirement (whichever comes later). This means assumptions underlying savings benchmarks should be reviewed …
• Allowing for real spending to reduce through retirement significantly reduces the amount needed to be saved compared to commonly used benchmarks that assume spending stays level in real terms.
• For example, assuming general price inflation is 2% a year and spending stays level in real terms, then the dollar amount of required income will increase by 2% a year. But if real spending is assumed to reduce by 2% a year from age 65, the dollar amount of required income stays level, and the savings balance needed at age 65 could be 40% smaller.
• We recommend that industry and government agencies review the assumptions implicit or stated in their commentary and tools including calculators and savings guidelines and consider how to reflect that real spending typically reduces through retirement. … and personal planning should consider desired personal spending at different stages of retirement
• Anticipating that real spending will reduce through retirement allows drawdown to last for longer or to be at a higher level in early retirement.
• Even allowing for real spending to reduce through retirement, older New Zealanders will still heavily rely on New Zealand Superannuation, public healthcare, and subsidies for later life care.
• We suggest that retirees already drawing down income in retirement or near-retirees planning their future drawdown should:
➢ Think about the impact of their own annual spending in retirement reducing in real terms during retirement, and which drawdown Rule of Thumb might suit them.
➢ Learn about the public services and subsidies that may be available in later life.
➢ Consider their options for using housing equity.
➢ Consider how they would pay for private medical expenses, at-home care costs, or residential care if they should need it and they prefer not to depend on public funding. Spending patterns through retirement
file:///C:/Users/Waugh/Desktop/Spending-through-retirement-RIIG-Dec2024.pdf