How prepared are New Zealanders to achieve adequate consumption in retirement? : a thesis presented in partial fulfilment of the requirements for the degree of Doctor of Philosophy in Banking at Massey University, Manawatu, New Zealand
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Date
2018
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Massey University
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Abstract
The majority of New Zealand retirees are happy with their current level of
retirement income; however, the critical issue is “Will their financial resources
last?” This question provides the catalyst for this thesis, requiring a definition for,
and a way of measuring retirement adequacy that is appropriate for New
Zealanders.
Government-funded NZ Superannuation forms the foundation of New Zealanders’
retirement income, sufficient to cover basic needs and prevent retirees falling below
the poverty line. Some (passive) retirees find that NZ Superannuation is sufficient
to meet their needs, achieving retirement adequacy regardless of their financial
behaviour and actions. However, others (active) retirees, desiring a higher
retirement income, are required to make financial decisions and take action to
augment their NZ Superannuation in order to achieve the lifestyle and level of
consumption desired in retirement. While retiree retirement adequacy can be
calculated with a degree of certainty, that is not the case for pre-retirees as future
employment, income, and health are susceptible to change.
This study found the Consumption Replacement approach was to be a more
appropriate methodology than Income Replacement for measuring retirement
adequacy. Financial calculations using data collected from an on-line survey of
1,044 respondents found that 60.4% of all ‘current’ retirees and 48.6% of ‘active’
retirees were likely to be adequately prepared for retirement, by being able to
maintain pre-retirement lifestyle and consumption in retirement.
Significant retirement adequacy factors drawn from the data were used to develop
the Financial Preparedness for Retirement (FPfR) Index to compare the
preparedness of retirees to pre-retirees. This study found that fewer pre-retirees
(32.1%) were likely to achieve retirement adequacy than retirees. Significantly,
nine out of ten inadequately prepared pre-retirees would need to save more than
25% of their current household income pre-retirement in order to achieve their
required retirement saving accumulation targets. The conclusion reached is that
New Zealand pre-retirees are less prepared financially for retirement than current
retirees.
Findings from this thesis will help provide a greater understanding of retirement
preparedness amongst policymakers, government agencies, educationalists,
financial institutions, professional financial advisers, and others, both
internationally and in New Zealand.
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Keywords
Retirement income, Planning, Finance, Personal, New Zealand, Research Subject Categories::SOCIAL SCIENCES::Business and economics::Business studies