How much it costs to retire well at record high as key expenses jump
The cost of a comfortable retirement has climbed to record highs as household bills surge. Here’s the lump sum you’ll need.
Rising bills for retirees’ essential household costs are climbing faster than inflation, putting many seniors on track for a financially tougher Christmas, figures reveal.
The Association of Superannuation Funds of Australia’s retirement standard research found it now costs a record $76,505 annually for a homeowner couple to retire comfortably and $54,240 for a single, amid heavy recent price rises in energy and council rates.
Over the year to September 30, the cost of retirement climbed 3.5 per cent for a couple and 3.6 per cent for a single, ahead of the 3.2 per cent rise in the Consumer Price Index, ASFA says.
It found that the cost of domestic holidays – popular among retirees – jumped 5.2 per cent in the September quarter. Electricity prices surged 9 per cent and property rates 6.3 per cent.
ASFA chief executive Mary Delahunty said prices for retirees had been rising the fastest in “the things they spend the most on, like food, energy and health”.
“Those things that you can’t avoid paying eat away at the budgets,” she said.
“In the Christmas quarter, retirees are making decisions about how they can find money for those essentials, and how they can also afford to have a meaningful festive season with their loved ones.
“They will be having to make choices and budgets will be stretched.”
ASFA defines a comfortable retirement as including top-level private health insurance, fast reliable telecommunications, owning a reasonable car, confidence to use airconditioning and afford all utilities, regular leisure activities, annual domestic holidays and an overseas trip every seven years.
It says to afford a comfortable retirement, a homeowner couple requires $690,000 combined in super, and a single $595,000, and would use a combination of their own funds supplemented by some age pension. They need to have paid off the mortgage.
Freshwater Wealth partner Roger Perrett said many retirees were now revisiting their previously planned retirement income needs and withdrawing more from their superannuation to cover rising expenses.
“They’re all saying ‘I can’t live on that – can we bump it up a little bit?’,” Mr Perrett said.
“The cost of living for retirees has gone up – they definitely know it, they definitely feel it.”
Mr Perrett said while wealthier clients could withdraw more money from super without making too many sacrifices, some clients were considering downsizing their homes at some point in the future, “whereas in the past they may not have thought about that before”.
More people were qualifying for the age pension as their super balances shrunk, he said.
Mr Perrett said people struggling with higher retirement costs could seek advice, revisit their investment risk profile, examine new longevity-focused investment and insurance products, consider “Plan Bs” such as downsizing, and ensure they were receiving government entitlements.
“Not just age pension, but all the other add-ons that they can get – concession cards, health cards, all those type of things to make sure they are getting the maximum benefit,” he said.
Rising superannuation balances are cushioning the blow of higher household expenses, and ASFA’s Ms Delahunty said this delivered today’s retirees more financial resilience.
“More and more Australians are able to rely on their superannuation balance,” she said.
“You’ve got an average super balance across Australians aged 15 and over at about $172,000 now, and for Australians aged 65-69 the average balance is close to $421,000.
“Year on year we will see less strain against a budget, but this growth of essential bills against inflation is really concerning, and will be for future generations as well if it’s not constrained in some way.
“Against global peers, Australia’s superannuation system takes the ease off the public pension system … the cost to all of us as a percentage of the GDP is falling.”
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