Is retirement now unaffordable?

There are more than 3 million retirees in Australia living on a fixed income. A growing proportion of these people are doing it very tough. Yet their plight is rarely discussed, let alone addressed.

So why are these people seemingly invisible in the eyes of policy makers?

For far too long the ASFA Retirement Living Standard categories of ‘comfortable’ versus ‘modest’ have been accepted as sufficient to cover the range of retirement income experiences. But YourLifeChoices has long suspected that ‘comfortable’ was much closer to ‘very well off’ and ‘modest’ meant ‘verging on poverty’.

With 3.5 million retirees and another 4 million currently aged 45 or over, who are due to retire over the next 20 years, retirement affordability should be one of the hottest policy topics in Canberra.

Yet apart from ongoing cuts to access to the Age Pension and fiddling around the edges of superannuation rules, there has been little real debate about the coming perfect storm. This storm consists of an ageing population, underfunded for retirement, carrying more debt, expected to shoulder all the risk of their retirement income, with virtually no government support and extremely low trust in industry advisers.

As Matt Grudnoff at The Australia Institute (TAI), our partner in the soon to be released Retirement Affordability Index™, has noted, ‘we had long suspected that a significant group of people in retirement are not doing very well at all, in fact they are living in poverty.’

And by contrast, another ‘retirement tribe’ is doing extremely well. And unless we reject the ‘one-size-fits-all’ descriptions of retirement income and look at the actual spending of the different types of retirement households, we will continue to assume that life in retirement is merely ‘comfortable’ or ‘modest’ – rather than ranging from the luxurious to the downright penurious.

Much research was required in order to discern more accurate retirement categories, with six different tribes being identified.

First up, we used special household expenditure data from the Australian Bureau of Statistics (ABS) to segment the population into six categories according to their home ownership, relationship status and form of income. Next the Consumer Price Index (CPI) across 12 different categories of expenditure was applied, showing how prices have risen much faster than CPI for retirement renters and at a slower rate for retired homeowners.

Blind Freddie can see that this situation is likely to be exacerbated as rental prices increase under pressure from the overheated property market.

Additionally, YourLifeChoices conducted a survey of its 250,000 members to ask about their experience of retirement affordability. This uncovered a lot of angst, including the sad truth that 56 per cent of respondents have run out of money before their next pension pay cheque arrives.

So using this new data, we have created an index to achieve two separate, but related, purposes. Firstly, to encourage a deeper policy debate about equity in retirement and to prompt questions about whether the current rules favour all.

And secondly, to assist YourLifeChoices members and other individual retirees who are trying to navigate the confusion of rules and regulations, subject to constant change, fearing that they ‘don’t know what they don’t know’, about retirement income.  Our retirement tribes’ household expenditure tables show the amounts your particular retirement tribe typically spends, item by item, as well as include a handy table in which to record your own expenditure and how you compare to the rest of your tribe. This will be updated quarterly so you can keep on top of your household budget. So don’t forget to watch out for the inaugural edition of the Retirement Affordability Index™ – hitting your inbox on Sunday 9 April.

Are you surprised to learn that many retirees are living in poverty? Or is this no news at all? To which retirement tribe do you belong?

Written by Kaye Fallick


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