What a ‘comfortable’ retirement will now cost you

The financial pressures on older Australians are escalating, with a sharp increase in non-discretionary living costs and a specialist report showing that only one-third of current retirees can fund a ‘comfortable’ retirement.

YourLifeChoices’ quarterly Retirement Affordability Index clearly shows how nest eggs are being drained. One year ago, well-off couples (self-funded homeowners) could expect to spend $84,393 annually in retirement, according to a panel compiled by Australia Institute senior economist Matt Grudnoff. In just 12 months, that has jumped to $88,874.

Equivalent tallies for five other cohorts are: constrained couples (homeowners who receive an Age Pension) from $48,787 to $51,392; cash-strapped couples (renters who receive an Age Pension) from $41,342 to $43,602; well-off singles from $48,214 to $50,755; constrained singles from $26,986 to $28,457, and cash-strapped singles from $26,082 to $27,530.

Those extra thousands drain nest eggs at a much faster rate than the retirement plan may have accounted for, meaning retirees’ number one fear – running out of money – is well founded.

The current rate of inflation has dropped to 4.9 per cent, the Australian Bureau of Statistics (ABS) reported this week. In the year to October, insurance and financial services inflation sits at 8.6 per cent, gas and other household fuels at 13 per cent and electricity at 10.1 per cent.

But there’s another sting in the tail. Mr Grudnoff says the ABS splits price movements into essential and non-essential spending. And essential spending, which includes housing, clothing and groceries, is rising much faster than non-essential spending.

It is in this area of non-discretionary spending where the pain is really being felt.

ABS head of business statistics Robert Ewing said spending on transport was high in September, rising 18.4 per cent over the year. That contributed to a 9.2 per cent rise in spending on non-discretionary goods and services.

“In contrast, discretionary spending rose 0.3 per cent over the year,” he said. “Less spending on discretionary goods like furniture has been offset by increased spending on discretionary services like recreation and culture.”

The YourLifeChoices figures are quite different to those released this week by the Association of Superannuation Funds of Australia (ASFA), primarily because they are more specific, taking in the six cohorts.

ASFA says annual costs for a comfortable retirement are about $72,000 for a couple and $51,000 for a single.

How much ASFA says you need

It says a single retiree needs a balance of $595,000 at age 67 to achieve a ‘comfortable’ lifestyle income of $50,981 using a combination of nest egg funds and the Age Pension. A couple requires $690,000 combined to achieve a comfortable income of $71,724 per year.

ASFA interim CEO Leeanne Turner says about one-third of current retirees – up from about a quarter of retirees a decade ago – have super savings that will deliver a comfortable retirement standard.

She says at least half of all Australian retirees should meet the comfortable standard by 2050.

However, ASFA noted that a majority of Australians die with little or no superannuation. Only 37 per cent of individuals aged 75 to 79 have any superannuation, while only 20 per cent of those aged 80 to 85 still have superannuation, a report found.

“Not having enough superannuation in retirement is a much greater challenge than the relatively few older individuals not spending all of their superannuation during their lifetimes,” says Ms Turner, referring to criticism that retirees are being too frugal in retirement and leaving the bulk of their nest egg to the next generation.

Gender gap

The ASFA report also states that the gender gap in superannuation is narrowing. However, there is still a 25 per cent gap in the median balance of women and men in the run up to retirement.

“Policy measures advocated by ASFA, such as the Superannuation Guarantee (SG) on Paid Parental Leave (PPL), a superannuation baby bonus, and an increase in the upper threshold for LISTO, aim to address this issue,” Ms Turner says.

ATO sample file data indicates that of those with more than $3 million in superannuation at June 2021, about 60 per cent were male and around 85 per cent were aged 60 and over. Around one-third had an investment property.

ASFA analysis of Census data shows that about 45,000 Australians aged 60 to 64 retire each year, compared with about 65,000 aged 65 to 69 and about 40,000 aged 70 to 74.

It also stated that in 2021-22, about 1.3 million people were receiving regular income from account-based income streams. About 99,000 were receiving annuity payments (both term and lifetime) and 159,000 receiving defined benefit pensions.

Are you watching the dwindling power of your nest egg with concern? Is inflation taking a greater toll than you had envisaged? Share your thoughts in the comments section below.

Also read: More than half of older Aussies facing housing crisis, survey finds

Written by Janelle Ward

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

Leave a Reply

Public service departments you trust the most – and the least

Woman travelling solo

Here’s how to travel the world – solo