Cost of a comfortable retirement up again and stressing seniors

How much does it cost now to retire comfortably? The answer may surprise you, and it is raising the stress levels of seniors.

Retirement costs continue to climb faster than overall inflation, putting further financial pressure on seniors who have a limited ability to cover the rise.

New figures from the Association of Superannuation Funds of Australia (ASFA) show the price of a comfortable retirement jumped 6.1 per cent in the year to June 30, driven higher by surging grocery and insurance expenses.

It was slightly above the Consumer Price Index rise of 6 per cent, and means it now costs a couple $70,806 and a single $50,207 to retire comfortably, according to the ASFA Retirement Standard.

ASFA deputy CEO Glen McCrea said seniors had different household budgets, spending a greater proportion on food and health costs, and less on education – which fell in the June quarter CPI.

“Food costs make up a greater proportion of retiree budgets at over 20 per cent, compared to around 17 per cent in the broader all-age CPI,” he said.

Soaring insurance costs also hit hard, with its strongest quarterly rise in 23 years – up 5 per cent, according to ASFA. Insurance costs climbed 14 per cent over the financial year.

“Seniors are much more likely than the general population to be homeowners,” Mr McCrea said. “They also have more possessions that need to be insured.”

Bread rose 5 per cent in the June quarter and 14 per cent for the year, and other popular foods increased more than 10 per cent annually, he said.

“Once again, putting dinner on the table became more expensive, with the cost of poultry, dairy vegetables and potatoes up significantly.

“Retiree budgets have been under substantial pressure for nearly two years.”

Wealth for Life Financial Planning principal Rex Whitford said seniors were worried about food costs and whether they would remain self-sufficient or “have too much life at the end of their money”.

“I do have clients who start to become concerned and want to stress-test their strategy overall,” he said.

Retirees were frustrated about energy costs, after many tried to combat future price rises upfront by installing solar panels and batteries, only to be later met with falling feed-in tariffs and sharp rises in service charges and power prices, Mr Whitford said.

“They don’t know where the hit is going to come from next,” he said.

Mr Whitford said seniors who were not earning extra income or investing in growth assets were most at risk of rising household costs, which reduced the value of their nest egg – or capital.

Seniors are worried about what financial hit will come next. Picture: iStock

“Their capital provides security, and inflation is eroding the capital,” he said.

Inflation was likely to remain higher for longer, Mr Whitford said. “Inflation is acting as a brake on the economy, and high power prices are acting as a brake on the economy,” he said.

While annual inflation is down from its 2022 peak of 7.8 per cent, this year it will be impacted by electricity prices leaping 20-30 per cent from July 1, and ASFA’s Mr McCrea said higher health costs were another issue.

“However, the Reserve Bank has pointed to easing demand pressures both overseas and in Australia which will moderate price pressures associated with supply chain shortages of a range of goods,” he said.

“There is also the prospect of seasonal weather conditions stabilising, leading to lower prices for food or at least lower price increases.

“Hopefully, these developments will flow through to offer some relief to retiree budgets in coming quarters.”