Rising retirement costs outpace inflation as household bills bite

The income needed to afford a comfortable retirement has broken above important – and difficult for many – levels.

The cost of a comfortable retirement has jumped 7.7 per cent in 12 months, accelerating at a faster rate than overall inflation and driven higher by surging utilities and food prices.

A retiring couple today needs more than $70,000 a year and a single requires more than $50,000 annually, according to new figures from the Association of Superannuation Funds of Australia.

The cost increase is larger than Australia’s CPI inflation, which rose 7 per cent for the 12 months to March 31.

The latest ASFA Retirement Standard shows seniors have been hit by big annual rises in energy costs (up 15.5 per cent), leisure activities such as holidays and restaurant meals (up 14 per cent) and food (up 8 per cent).

In the March quarter alone, medical and hospital services climbed 4.2 per cent, insurance costs increased 3.5 per cent and fruit and vegetables rose 2.4 per cent.

ASFA CEO Martin Fahy said retiree budgets put a larger proportion of money towards essential services such as food, energy and medical costs, “which each have increased significantly”.

“Retiree budgets have been under substantial pressure for over 18 months,” Dr Fahy said.

“Self-funded retirees will not be eligible for federal budget measures aimed at relieving cost-of-living pressures, and despite recent adjustments to the Age Pension, payments continue to lag inflation”.

ASFA says the annual budget for a comfortable retirement is a record $70,482 for a couple aged about 65 and $50,004 for a single. It says a “modest” retirement costs $45,808 for a couple and $31,785 for singles – which can be largely covered by the age pension.

The comfortable retirement calculations assume retirees draw down their super savings and receive a part pension, and ASFA says the lump sums now required at retirement are $595,000 for singles and $690,000 combined for couples.

CreationWealth senior financial adviser Andrew Zbik said energy costs and other bills were a key concern, but many retirees were worrying unnecessarily about eating into their nest eggs.

“They’re panicking now, particularly this year as they are seeing expenses up and lacklustre returns – they feel like they are battening down the hatches, but many don’t need to,” he said.

“The super system is designed for you to draw down on your capital to support your lifestyle.”

Seniors can improve their retirement lifestyle by using superannuation wisely. Picture: iStock

Mr Zbik said four decades of working made people accustomed to watching their bank balance grow, so seeing it shrink was shocking for some.

“In retirement you are in a different phase of life,” he said.

“You can draw down on your capital to support your lifestyle … when you accept that, it fundamentally changes the expectation of what quality of life you will be able to obtain.”

While many of today’s retirees feel crunched by rising costs, younger workers are better-positioned for the future because of higher compulsory superannuation payments, which will rise from 10.5 to 11 per cent on July 1 on their way to 12 per cent in 2025.

ASFA’s Dr Fahy said the comfortable retirement figures reflected “community expectations as well as changing lifestyle expectations and spending habits”.

“Fortunately, it’s clear that the Super Guarantee rise to 12 per cent puts younger generations of Australians firmly on track to build the retirement savings necessary to best weather challenging budgetary pressures and to enjoy the dignified retirements they deserve,” he said.

Originally published as Rising retirement costs outpace inflation as household bills bite