When I'm sixty-four🍋

An economic perspective on ageing

  Doing the garden, digging the weeds,
  Who could ask for more?
  Will you still need me, will you still feed me,
  When I'm sixty four?

I’ve recently had a birthday — and yes, it’s the one in the Beatles’ celebrated song. It’s a somewhat unwelcome reminder of changes to come, many unavoidable.

I thought I’d share an economic perspective on ageing, and what that can mean for some of the ways we think about inequality.

West Coast, South Island. Dave Heatley

Perhaps unsurprisingly, I have changed my mind on a few things over the past 40 years. At age 24, my total financial wealth might just have scraped into four figures. I’m sure that I would have said then that I would never need (or want) to be a millionaire, and further than nobody else would (or should) ever need that much money.

Inflation means that being a millionaire¹ today is much easier than it was in 1985.² Even so, a million dollars remains a lot of money — around 15 years’ income at today’s average after-tax wage of $66,210.³

The retirement savings game

Retirement (i.e. permanently leaving the workforce) is an event for some people, and a drawn-out process for others. (I expect to be in the latter camp.) From a financial perspective, retirement is the changeover point from accumulating financial wealth to running it down.

The tricky question in the decades leading to retirement is how much to save. Then, as one gets close to retirement age, it becomes too late to start saving in earnest. So, the
tricky question morphs to: given your previous savings choices, at what age can you afford to retire?

That, it turns out, depends crucially on two questions:

• how long do you expect to live?

• how much income do you need/want each year in retirement?⁴

For illustration, let’s take a fictitious couple, both of whom turn 65 next year.

How long can a 65-year-old couple expect to live?

According to the New Zealand cohort life tables, the female can expect to live a further 23.4 years and the male 21.0 years, living until 88 and 86 respectively.

Those expectations are medians, so there is a 50% chance of living beyond those ages. But, and likely more importantly, the life tables are based on today’s mortality rates. This implicitly assumes a plateau in improvements for treating the ailments of age, and in living standards more generally. That’s a big assumption! Life expectancy at 65 has been rising for at least a century, and shows no sign of letting up.

Median expected lifespan for 65 year olds, by year of birth.

To be on the safe side, our couple should plan to live into their 90s.

How much income will they need?

That’s a hard question. (My experience doesn’t help here — I haven’t tried retirement yet! My prediction track record for what I’ll be doing a few years’ hence is poor — knowing what I’ll be doing over the coming decades, and how much that will cost, seems near impossible.)

The 2024 New Zealand Retirement Expenditure Guidelines say that a two-person household in a metro area need around $90,000 on a “choices” budget. (The amount is lower for provincial areas and for a “no frills” budget.) This assumes that the couple own a house without a mortgage.

For illustration, I’ll take $90,000 per year as a target income.

What assets will they need at retirement to generate that income?

There is plenty of advice out there on retirement savings. (Sorted.org is a suitable place to start.) The general view is that it is good to aim to own a house (without a mortgage), collect NZ Super⁵, and have a pot of savings (financial assets) from which you can draw down between 4 and 6% each year.⁶

The average NZ house is now around $900,000 — I’ll round that to $1m. (It’s more like $1.2m in Auckland.)⁷ A 65-year-old couple owning a $1m house and $1m in financial assets are both millionaires, by definition.⁸ If they receive NZ Super and draw down 5% of their financial assets each year, they will have a combined pre-tax income of roughly $100,000 per year, around $85,000 after tax.⁹

Depending on the pre-retirement income you’ve become used to, $85-90,000 might seem like a lot — or not much at all. But even the mere idea that one might need to be a millionaire to have a comfortable retirement would likely have startled my 24-year-old self.

The tax-and-transfer system moves money across our life cycles

Whether or not you retire on the dot of 65, your financial relationship with other New Zealanders will likely change. As you can see in this chart, New Zealanders aged between 25 and 64 make a net contribution (on average) to the state’s coffers.¹⁰ The reverse applies to those aged below 25 and above 65.

Fiscal incidence and income inequality by age, New Zealand, tax year 2018/19

The big change between the 60-64 group and the 65-69 group is the jump in income support (in orange; mostly attributable to NZ Super). In-kind benefits (in blue; mostly public healthcare and education) also jump up at this boundary.

Direct taxes (in grey; mostly income tax) drops a little, but perhaps not as much as I might have expected. A plausible explanation is a combination of late retirements and taxable earnings from investments, the latter peaking in one’s 60s.

Indirect taxes (in gold) are dominated by GST, which is proportional to consumption (i.e. personal expenditure). This doesn’t change much between ages 40 and 74, after which it declines slowly. The decline is associated with a lower income and higher health costs; so it is plausible that people are running out of savings, and/or having their activities curtailed by health problems. (It is also likely that consumption preferences change in one’s 70s.)

There’s also a lesson here for me: my past 10 years’ expenditure may be a good guide for my next 10 years.

Two cheers for wealth inequality!

Wealth inequality indicators are cross-sectional, that is, they compare every adult’s wealth measured (or estimated) as at one date.

From time-to-time, wealth inequality hits the headlines. This doesn’t seem to be driven by substantive changes in the data; wealth shares have barely moved over the past 30 years, as can be seen in this chart.¹¹

Wealth inequality, New Zealand, 1995-2023

Wealth inequality indicators combine between-person inequality (my wealth is different from that of my same-aged neighbour) with across-time inequality (my wealth is different from that of my past and future selves.)

Taking myself as an example, I’m pleased to be much wealthier — in financial terms — than my 24-year-old self. Offsetting that, at 24 I had better health, and 40+ years of income-earning potential ahead of me — factors that are not included in these wealth-inequality measures.

On a moral dimension, across-time inequality is not necessarily bad. It may even be good. I personally find the idea of a millionaire aged 24 rather uncomfortable (how did they earn so much, so quick?), whereas being a millionaire at age 64 so as to fund one’s retirement seems more like prudent financial management than sin.

One downside of wealth taxes

Wealth taxes are often proposed as a revenue source, and sometimes as a way of punishing the “sin” of being rich. (Of course, no single tax can efficiently serve both purposes.)

However, following the logic in this post, most people’s wealth will peak at their retirement age. A wealth tax that does not adjust for age will likely reduce the amount saved before retirement, and increase the drawdown rate after retirement. Post-retirement incomes will take a substantial hit. And that, in turn, may create its own drag on public finances.

One million over 65s

Retirement is a big topic; one I’ve only touched the surface of here. Will a shrinking number of taxpayers gladly support a growing number of retirees? What is the outlook for those with fewer assets than the fictitious millionaire couple? And what if lifespans in the 100s become normal in coming decades? There is lots to explore in forthcoming posts.

One thing I can be sure of — my ageing self will have plenty of company. New Zealand is ageing — its over-65 population is expected to reach one million in 2028.

By Dave Heatley

Lake McKerrow, Fiordland National Park. Dave Heatley

1. By “millionaire” in this post I mean having NZ$1 million in net assets, that is, assets valued at their realisable sale price less mortgages and other debts.

2. According to the RBNZ inflation calculator, one million New Zealand dollars in 1985 is equivalent to $3,668,538 in 2025, after adjusting for consumer price inflation, or $5,240,932 after adjusting for wage inflation.

3. Source: https://www.salaries.co.nz/cd/tax-calculator/average-wage.

4. Your answer to “how much income do you need/want each year in retirement?” depends to some extend on your expected health. Poor health could be costly but, on the other hand, it might curtail expensive hobbies and travel plans. I won’t explore the implications of health further in this post — it’s long enough already.

5. New Zealand Superannuation is NZ’s near-universal age pension, that kicks in at age 65. (It’s not quite universal — see the eligibility rules.) An eligible couple currently receive approximately $50,000 per year (pre-tax).

6. Withdrawing 4-6% per year will slowly run down your financial assets over 20-30 years. The post-tax real rate of return on those assets is unlikely to be sufficiently high to offset such withdrawals. If the financial assets are poorly invested they will deplete more quickly, so it is best to seek sound financial advice.

7. The median NZ house value in March 2025 was $881,338; $1,221,140 in Auckland. Source.

8. Our fictitious couple will likely need more than their KiwiSaver balance. The average balance at the end of 2024 for those ages 60-64 was just $69,104. Source.

9. The actual tax paid by the couple depends on how their income is split, and the tax treatment of income from their financial assets. For illustrative purposes, I’ve assumed that their financial assets are evenly split; their financial assets earn 5% (nominal) each year, which is taxable at their (individual) marginal rate; and that capital gains are untaxed. With those assumptions, $15,000 is roughly twice the tax payable on $50,000 of taxable income, according to IRD’s tax calculator.

10. Tod Wright & Hien Nguyen (2024). Fiscal incidence and income inequality by age: Results for New Zealand in tax year 2018/19. Analytical Note 24/09. New Zealand Treasury.

11. Source: World Inequality Database.