People over 65 have seen a very sharp rise in financial hardship in the last two years. Essentials like food, housing and healthcare have, for some, become unaffordable. Interest rates remain high and there is no sign they will be dropping any time soon. Unfortunately, there is an increasing number of over 65s who still have a mortgage and the increase in repayments is hard to manage on a relatively fixed income.

Food biggest devourer of budgets

For those lucky enough to be mortgage-free, the biggest weekly expense is food. Every year, the University of Otago reports on estimated food costs for households. The report considers three budget options depending on preferences – basic, moderate, and liberal.

In 2023, the estimated weekly food costs for a couple were $163 for a basic budget, $213 for a moderate budget and $276 for a liberal budget. Converted to annual figures, these budgets amount to $8,476, $11,076 and $14,352 respectively. That’s a sizeable chunk of the net pension of just under $40,000 a year for a couple. In June 2023, the food price index peaked at around 12.5% (annualised) but has since fallen to around 2%.

Housing-related costs a close second

Housing-related costs also make up a significant part of a retiree’s budget. Local Government New Zealand (LGNZ) recently estimated that in the coming year rates increases across local authorities could range from between 6% and 24%, with an average increase of over 15%.

Some years ago, the government commissioned an independent inquiry into local government rates, which resulted in “The Shand Report” (named after its chair, David Shand). The report suggested that rates shouldn’t exceed 5% of a household’s income, with rates beyond this deemed unaffordable.

Calculate what you could draw in retirement.

While some councils still use 5% as a benchmark of affordability, this is in relation to the average household income within the community. Of course, most retirees fall well below the average income. A retired couple paying $5,000 a year in rates will be outlaying over 12% of their income from NZ Super. This rises to around 20% for a single person.

Another significant housing-related cost for retirees is insurance. House insurance premiums have risen exponentially in recent years due to the impact of natural disasters in New Zealand. Insurance premiums can be as much as, or more than, rates. It’s no wonder that some retirees are forced to put themselves in jeopardy by not insuring or by underinsuring their house.

Tips for managing runaway costs

So, what can be done to beat these rising costs? Much of the inflationary pressure is beyond our control, however there are actions we can take to protect ourselves.

• Find your balance: The starting point is to make sure you are in the strongest financial position possible by having the right balance of wealth tied up in your home versus wealth invested to support your retirement lifestyle. If too much of your wealth is in your home, you will struggle to get by when times are tough.
  
  You can change the ratio by continuing to work, thereby adding to your savings, or by moving to a cheaper house. You can also free up wealth in your home via an equity release product. If you still have an ordinary mortgage, you may be able to refinance with a reverse mortgage which does not require any repayments during your lifetime.
  
  

• Check your food bill: The next step is to look at your annual budget. Food is probably the biggest category, and spending on food is something that you have some control over. The Otago University study is a useful benchmark and shows just how much can be saved by sticking to a basic budget. There is around $6,000 a year difference between the basic and liberal budgets.