How to use the RAI to properly plan your retirement budget

Ken is using the Retirement Affordability Index to plan his return to Australia.

How to use the RAI to properly plan your retirement budget

Ken is using the Retirement Affordability Index to plan his return to Australia and has a few questions as to what some of the figures mean.

•••

Q. Ken

Thank you all for your efforts in putting together a very informative eNews and eMagazine. Receiving it each day has certainly helped us keep in touch while spending the past seven years living in Spain and travelling around Europe.

We are planning our return early next year and have been using the Retirement Affordability Index to help us prepare our budget.

We roughly fit into the Affluent couples grouping, with a similar expenditure, and own a house here. I have two questions. The ‘medical & healthcare’ expenditure item of $145.09 weekly/$7587 annual seems very low if it includes health insurance. I understand that chemist costs maximise at $390 each but surely the cost of dentist, doctors’ ‘out of pocket’, etc would leave a very small balance amount for the insurance costs. I have been researching the insurance costs via the web and, in fact, received a quote from HCF for close to the top cover (silver) of $4540 each. Can you please explain what this figure represents?

Matt Grudnoff, senior economist at The Australia Institute, says: The information on spending comes from a special order data request from the Australian Bureau of Statistics (ABS). The ABS has a Household Expenditure Survey (HES) that is run every five years. This survey picks a representative sample of the entire Australian population and asks them to record everything they spend. YourLifeChoices’ Retirement Affordability Index™ is constructed by asking the ABS to tell us the average amount spent for each of our tribes (rather than for the whole population).

So, for the Affluent tribe it is the average spend for households where people are over the age of 55, not working or seeking work, who own their own home (or who are paying a mortgage) and who get the majority of their income from private investments (which can include people on a part pension where the super and other investment income is greater than the part pension).

The important thing to remember is that it is an average. When you see an average, you have to ask yourself if this spending category is the kind of spending where the average can be distorted. Let me give you an example.

From memory, the average spending on tobacco products for the Affluent tribes is about $2.50 per week. But we also know that less than 10 per cent of those in these tribes smoke. This means the average doesn't really represent anyone in these tribes. Those who don't smoke are likely to spend zero, while those who do smoke are likely to spend 10 times that. The average spending for this category is pretty meaningless.

Health spending, as you pointed out, is dominated by payments for private health insurance. Many of the Affluent tribes are likely to have high level cover. Some are likely to have low level cover and some will have no cover at all. Another important thing to consider is those who have a healthcare card and those who don't. About 90 per cent of retirees have a part pension or healthcare card. But the Affluent tribes include all those who don't get a healthcare card.

What does this all mean? It probably means that average healthcare spending is not going to be the best measure of what you individually spend on healthcare. There are likely to be lumpy groups on either side of the average that make the average less useful. If you had your head in the freezer and your feet in the oven, then your average body temperature might be good but you're unlikely to be comfortable. Extremes at either end can reduce the usefulness of averages.

That doesn't mean average spending is not useful. Spending on food within someone’s tribe is likely to be much more accurate. There will be some people who eat out at expensive restaurants and others who cook all their own simple meals, but a significant proportion of the tribes are likely to sit close to the average. After all, everyone has to eat and we all eat a fairly similar amount (particularly as the tribes take into account couples and singles).

When it comes to healthcare, it might be better to do your own research that takes into account your own circumstances and preferences and use that rather than the average spend.

The September edition of YourLifeChoices' Retirement Affordability Index™ will arrive in your mailbox on 6 October. It is a collection of expert articles – by economists, influential think tanks and industry influencers – that focus on the issues you say should be addressed in the Federal Government’s retirement income review. 

If you enjoy our content, don’t keep it to yourself. Share our free eNews with your friends and encourage them to sign up.

RELATED ARTICLES

    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.





    COMMENTS

    To make a comment, please register or login
    Charlie
    20th Sep 2019
    12:07pm
    All my tribe get a new tool. Yeah ok?
    Eddy
    20th Sep 2019
    4:27pm
    The quote of over $9000 for a couple for health insurance seems rather pricey, does it take into consideration the 30% rebate. If you are looking at $9k pa then I suggest you would be better off saving/investing the money and rely on the public system for major illnesses and use your savings if you need elective surgery for which you may have to wait an extended time for a public system vacancy.
    sunnyOz
    20th Sep 2019
    6:28pm
    Don't forget - any money you put aside for savings for health costs - Centrelink will take thins money into account in your assets/income test. A friend of mine has just got caught with this.
    Greg
    22nd Sep 2019
    11:56am
    $4540 each for health insurance. Seems high and why EACH, don't you apply as a couple. Something doesn't sound right there.


    Join YOURLifeChoices, it’s free

    • Receive our daily enewsletter
    • Enter competitions
    • Comment on articles

    You May Like