Is this retirees’ best-kept secret?

Of course, there is no simple answer as we all have different expectations of retirement and different lifestyles. And the interdependence of superannuation, private savings and the Age Pension make the equation hellishly difficult. But this Retirement Affordability Index offers the most accurate guide to expected expenditure.

Why? Because rather than offering general guidelines to comfortable and modest standards of living in retirement, YourLifeChoices and The Australia Institute have fine-tuned the categories and, since 2017, have shared on a quarterly basis what you can expect to spend in six categories: well-off couples and singles (self-funded homeowners), constrained couples and singles (homeowners who receive a full or part Age Pension) and cash-strapped couples and singles (renters who receive an Age Pension).

Well-off retirees, for example, tend to spend significantly more on food, clothing, recreation and health than cash-strapped retirees who spend the highest percentage of income, as expected, on housing.

As Australia Institute senior economist Matt Grudnoff explains, how much you will need in retirement will, of course, depend on all the things the household buys. And how the rising inflation rate – 5.1 per cent over the past 12 months – will affect you will depend on those purchases.

“Your household’s inflation rate will be higher if you spend more on things that are seeing large increases in prices and your inflation will be less if you’re spending more on things that aren’t increasing as much,” he says.

The Retirement Affordability Index – with its six cohorts with six different spending patterns – allows retiree households to find a spending pattern that more closely matches their own and thus gives them the most accurate guide to inflation challenges.

The Association of Superannuation Funds of Australia (ASFA) has released retirement standards since 2004. The current ASFA comfortable lifestyle standard is $45,239 per annum for a single person and $63,799 per annum for a couple, while the modest lifestyle standard is $28,775 for a single and $41,446 for a couple.

But there is growing dissent in the financial sector about the values of the ASFA estimates.

Grattan Institute economic policy program director Brendan Coates says the ASFA standard has never been relevant to most Australians, and is becoming increasingly less relevant.

Mr Coates says there should be specific standards for low-, middle- and high-income earners that better reflect the broader experiences and expenditure of different retirees.

There are Mr Coates, in YourLifeChoices’ Retirement Affordability Index.

The most recent weekly, monthly and annual cost-of-living estimates, based on the March quarter consumer price index, is presented on page 18 for you (and Mr Coates and others) to scrutinise so that you can enter or continue in retirement with eyes wide open.

The estimates and the tracking details of where costs have risen – or maybe even fallen – in the past quarter will help you make meaningful changes to your budget.

Armed with an accurate estimate of how much you are likely to spend in retirement, check your longevity – there are several free calculators available. And as outlined in this Retirement Affordability Index, understand your options with super, become familiar with the Age Pension and other government benefits, such as the Commonwealth Seniors Health Card, get financial advice and make sure you have a will and an advanced care directive, and that they are up to date. Not as simple as 1-2-3, but it’s a good start on limiting the dangers of the adage ‘it’s not what you know, it’s what you don’t know’.

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Janelle Ward
Janelle Ward
Energetic and skilled editor and writer with expert knowledge of retirement, retirement income, superannuation and retirement planning.
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