The cost of living is killing many a dream retirement. But, as The Australia Institute senior economist Matt Grudnoff writes, the latest Retirement Affordability Index table may offer some hope for retirees.
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As we surmised in the February edition of the Retirement Affordability Index, it now looks far more likely that inflation peaked at the end of 2022, with inflation falling from 7.8 per cent in December 2022 to 7.0 per cent in March 2023.
This doesn’t mean prices are falling. Far from it. It just means that prices are now increasing at a slower rate than they were previously. But the rate of increase is still 7 per cent, which is historically high.
The main drivers of inflation this quarter were in health, utilities, and housing
Housing costs continued to climb, driven by increases in rents of 5 per cent through the year. Rents are now increasing faster than at any time since 2012. Utilities have also continued to rise, driven mainly by increases in gas prices of 26.2 per cent for the year, and to a lesser extent electricity prices, which are up 15.5 per cent for the year.
The increase in health prices was driven by cyclical increases in private health insurance and other medical services (4.2 per cent). These were partly offset by the decrease in the cost of the non-concession co-payment for medicines.
While the cost-of-living squeeze is still on, there was some good news, with automotive fuel decreasing by 0.8 per cent for the quarter.
Other household goods that have seen large increases in prices because of supply side constraints have also begun to fall in price. Furniture (-3.5 per cent), household textiles (-4.2 per cent), and household appliances (-2.9 per cent) have all fallen.
The supply side constraints caused by the opening of the world economy after the pandemic appear to be largely resolving themselves.
This is another good sign that the worst of inflation may now be behind us.
Which cohort has been hit hardest?
Our retirement cohorts continue to be affected by the cost-of-living increase in different ways.
The bigger price increases in rents have affected cash-strapped singles and couples who are the only cohorts to rent. They have seen the largest increase in their cost of living with cash-strapped couples seeing prices increase of 1.3 per cent for the quarter and 7.3 per cent for the year.
Cash-strapped singles have seen prices increase by 1.2 per cent for the quarter and 7.5 per cent for the year.
Constrained singles also saw inflation rise above the consumer price index (CPI), increasing 1.3 per cent for the quarter and 7.1 per cent for the year. Our other three cohorts saw inflation rates that were slightly less than the CPI. Constrained couples saw prices increase by 1.3 per cent for the quarter and 6.8 per cent for the year.
For affluent couples, the increase was 1.1 per cent for the quarter and 6.9 per cent for the year. For affluent singles, prices rose 1.1 per cent for the quarter and 6.8 per cent for the year.
While we may be seeing the worst of inflation in our rear-view mirrors, the cost of retirement is still higher than it has been in years. The good news is, it may become a little more affordable in the near future. With each coming edition of the Retirement Affordability Index and by this time next year, we would hope that is the case.
Retirement Affordability Index May 2023 table
| Couples | Singles | |||||
|---|---|---|---|---|---|---|
| Couple homeowners with private income | Couple homeowners on Age Pension | Couple who rent on Age Pension | Single homeowners with private income | Single homeowners on Age Pension | Single who rent on Age Pension | |
| Housing | $216.39 | $127.90 | $242.22 | $145.40 | $107.31 | $190.83 |
| As a percentage of expenditure | 13% | 13% | 30% | 15% | 20% | 37% |
| Domestic fuel & power | $50.00 | $37.55 | $39.64 | $36.16 | $32.37 | $27.47 |
| As a percentage of expenditure | 3% | 4% | 5% | 4% | 6% | 5% |
| Food & non-alcoholic beverages | $281.00 | $197.92 | $178.96 | $141.17 | $99.23 | $88.93 |
| As a percentage of expenditure | 17% | 20% | 22% | 15% | 19% | 17% |
| Alcoholic beverages & tobacco products | $60.63 | $33.06 | $53.73 | $32.66 | $19.42 | $27.28 |
| As a percentage of expenditure | 4% | 3% | 7% | 3% | 4% | 5% |
| Clothing and footwear | $31.34 | $17.78 | $9.40 | $20.84 | $9.04 | $7.46 |
| As a percentage of expenditure | 2% | 2% | 1% | 2% | 2% | 1% |
| Household furnishings & equipment | $83.53 | $36.24 | $22.05 | $45.71 | $21.22 | $16.93 |
| As a percentage of expenditure | 5% | 4% | 3% | 5% | 4% | 3% |
| Household services & operation | $50.15 | $35.48 | $19.16 | $45.24 | $25.57 | $13.59 |
| As a percentage of expenditure | 3% | 4% | 2% | 5% | 5% | 3% |
| Medical & healthcare | $167.77 | $119.58 | $41.40 | $96.33 | $42.66 | $25.24 |
| As a percentage of expenditure | 10% | 12% | 5% | 10% | 8% | 5% |
| Transport | $231.63 | $150.36 | $71.49 | $122.70 | $62.58 | $42.20 |
| As a percentage of expenditure | 14% | 16% | 9% | 13% | 12% | 8% |
| Communication | $34.47 | $24.43 | $26.44 | $33.36 | $17.22 | $13.44 |
| As a percentage of expenditure | 2% | 3% | 3% | 3% | 3% | 3% |
| Recreation | $336.92 | $114.42 | $74.39 | $156.92 | $59.03 | $35.63 |
| As a percentage of expenditure | 20% | 12% | 9% | 16% | 11% | 7% |
| Education | $0.68 | $0.25 | $0.00 | $0.15 | $0.14 | $0.01 |
| As a percentage of expenditure | 0% | 0% | 0% | 0% | 0% | 0% |
| Personal care | $32.91 | $19.97 | $13.88 | $20.50 | $10.81 | $9.58 |
| As a percentage of expenditure | 2% | 2% | 2% | 2% | 2% | 2% |
| Miscellaneous goods & services | $99.53 | $53.67 | $26.84 | $60.41 | $29.40 | $18.32 |
| As a percentage of expenditure | 6% | 6% | 3% | 6% | 5% | 4% |
| Total weekly expenditure | $1676.93 | $968.60 | $819.62 | $957.55 | $536.00 | $516.90 |
| Total monthly expenditure | $7266.71 | $4197.26 | $3551.68 | $4149.40 | $2322.65 | $2239.90 |
| Total annual expenditure | $87,200.53 | $50,367.13 | $42,620.19 | $49,792.83 | $27,871.81 | $26,878.84 |
Which costs have you noticed easing in the past quarter? Which continue to soar? How are you managing the cost of living right now?
