Which retirement expenses can you reduce?

Managing retirement expenses is a challenge for many at the best of times. And the cost-of-living pressures of recent years have now arguably created the worst of times, making the challenge harder still.

No individual Australian (with the possible exception of billionaires) can influence the cost of living nationally, but can we do more to control our own retirement expenses? The answer for most is probably ‘yes’.

Of course, saying ‘we can’ is not the same as saying ‘we will’. And that’s not the same as actually following through on that commitment. One of the barriers to acting for some might be identifying where the biggest savings can be made. Once this has been done, a dramatic cut in retirement expenses becomes a genuine possibility.

How do your retirement expenses compare to those of other Australians?

In broad terms, the easiest way to answer that question is to identify in which of six categories you belong. These six categories are defined by Matt Grudnoff, senior economist at The Australia Institute in the latest YourLifeChoices Retirement Affordability Index. Mr Grudnoff’s analysis reveals how retirement expenses differ between the groups as a percentage of total expenditure.

The six categories are:

• affluent couples: couple homeowners with private income
• constrained couples: couple homeowners on Age Pension
• cash-strapped couples: couples who rent on Age Pension
• affluent singles: single homeowners with private income
• constrained singles: single homeowners on Age Pension
• cash-strapped singles: singles who rent on Age Pension

Using this classification method allowed Mr Grudnoff to highlight the different retirement expenses pressures experienced by each group. 

For example, housing for affluent couples comprises just 13 per cent of total expenditure. Compare that to cash-strapped couples – 30 per cent – and cash-strapped singles – 37 per cent. 

Such a comparison clearly shows that priorities and pressures can vary widely between the groups. These variations are reflected in some of the other categories. 

Take recreation for example. With housing a very low proportion of overall expenditure for affluent couples, the opportunity for discretionary purchases rises. Thus, recreation accounts for 20 per cent of affluent couples’ spending, while for cash-strapped couples it’s only 9 per cent. For cash-strapped singles it’s lower still, at just 7 per cent of total expenditure.

Given that recreation is universally acknowledged as having a positive impact on physical and mental health, that’s a concerning disparity. That said, it is certainly possible to partake in recreational activities relatively cheaply. The question that could be asked is, are cash-strapped Australians getting as much recreation as affluent Australians, irrespective of cost?

Identifying your biggest retirement expenses

The Retirement Affordability Index data is obviously broad in nature, although it may help you paint a picture of your own circumstances. More specifically it may assist you to identify your biggest retirement expenses, and decide what, if anything, can be done to reduce them.

I keep a spreadsheet that tracks all my financial transactions, and I have so done for longer than I care to admit. At times I’ve wondered why. I’ve never actually minded doing so, because I’m a lover of both numbers and spreadsheets. But fiddling around with those things for fun doesn’t pay bills or save money, necessarily.

That final word – ‘necessarily’ – proved a key for me. I was thorough enough in my record keeping to assign categories to my expenses. As nerdish as this might seem, it allowed me to easily group them and identify which ones ‘topped the charts’.

For the record, I don’t belong to any of the six categories, or ‘tribes’ as Mr Grudnoff refers to them, for two reasons. Firstly, I’m not yet retired and secondly, I am a single renter with private income.

That doesn’t allow me to identify which ‘tribe’ I belong to, but it hasn’t stopped me identifying my expenditure breakdown. Sometime ago I identified my rental costs as disproportionately high and was lucky enough to be able to address that. Others may not be able to do so, of course, especially as rents continue to climb at an alarming rate.

For me, ‘food and non-alcoholic beverages’ stood out as a very big proportion of my expenditure. In theory that’s not a bad thing. In practice – in my case – I identified that much of my expenditure in that category involved fast and/or delivered food.

Taking action

I had an idea that I was spending more than was wise on (mostly unhealthy) delivered food, but identifying it as a percentage of my total retirement expenses showed me just how much more. It was enough to shock me into making some drastic changes. These have already had a beneficial effect on my bank account and health.

Some might have a similar story to mine, others will not. But the exercise of analysing your retirement expenses through categories such as Mr Grudnoff’s may offer just as much insight.

And that insight could help transform your retirement expenses profile into a much healthier one.

Have you ever sat down to analyse your retirement expenses? Were you surprised by the breakdown, and did you make changes as a result? Let us know via the comments section below. 

Also read: Index shows retirement planning more important than ever

Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.