Why create the Retirement Affordability Index?

Of the more than three million Australian retirees living on a fixed income, a growing proportion are finding it increasingly difficult to make ends meet. Yet their plight is rarely discussed, let alone addressed.

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

For too long the ASFA Retirement Living Standard, categorising life in retirement as ‘comfortable’ or ‘modest’, has been accepted as a sufficient description of retirement costs. But YourLifeChoices and The Australia Institute (TAI) have long suspected that ‘comfortable’ was actually better described as ‘very well off’ and ‘modest’ often really meant poverty.

With 3.5 million retirees and another four million people, 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 TAI – our partner in this Retirement Affordability Index™ – has noted, “… we have long suspected that a group of people in retirement are not doing very well at all, in fact they are living in poverty.”

The corollary of this is that 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 life in retirement only varies between the ‘comfortable’ or ‘modest’, rather than ranging from the luxurious to the downright penurious.

Extensive research was required in order to discern the six more accurate retirement tribes (more fully explained on pages six and seven), and for this our deep thanks go to Matt and his colleagues at TAI.

First up, we required 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 and the most striking responses are shown in an infographic on page five.

So we hope that the quarterly publication of this Retirement Affordability Index™ will achieve two main aims. Firstly, to encourage more realistic research-based debate on the policy aspects of retirement income and affordability, and to prompt deeper questions about whether the current rules favour all.

And secondly, to help those individual YourLifeChoices members who are currently trying to navigate the confusion of changing rules and regulations, fearing that they ‘don’t know what they don’t know’, about retirement income. So we have provided an accurate and detailed table that shares the actual amounts your particular ‘tribe’ spends, item by item, as well as a handy table in which to record your own expenditure and to see how you compare.

The Australia Institute is an independent Canberra-based think tank. We conduct original research that contributes to a more just, sustainable and peaceful society. Our research covers a broad range of economic, social, transparency and environmental issues in order to inform public debate and bring greater accountability to the democratic process.

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