Finance Your Super Retirees gain some ground but the overall cost of retirement jumps

Retirees gain some ground but the overall cost of retirement jumps

Retirement costs.
Retirees' living costs have slowed but it mightn't feel that way. Photo: Getty
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Australian retirees gained some ground relative to the cost of living index in the December quarter, despite rises in expenses.

The ASFA Retirement Standard December quarter figures reveal couples aged around 65 would need to spend $60,977 per year and singles $43,317, to live a comfortable retirement: up 0.2 and 0.3 per cent respectively on the September quarter figures (see table 1 below), according to the latest Retirement Standard from the Association of Superannuation Funds of Australia (ASFA).

The CPI for the period rose 0.5 per cent, but with ASFA saying that much of the CPI gain was driven by tobacco price rises that were not factored in to its figures, the relative gain by retirees was lower than it looked.

ASFA’s cost-of-living calculations for retirees look like this:

While cost rises may have come out relatively flat, it will not necessarily feel that way for retirees because some prices for highly visible living expenses rose far more strongly than the average.

  • Medical and hospital expenses rose by 4.2 per cent
  • The cost of domestic holidays rose by 6.2 per cent
  • Postal charges by 10.4 per cent
  • Beer by 3.5 per cent
  • Spirits by 2.5 per cent
  • Eating out by 2.0 per cent
  • Hairdressing by 3.2 per cent
  • Gas and other household fuels by 3.2 per cent
  • Automotive fuel by 6.7 per cent
  • Urban transport fares by 2.5 per cent
  • The price of lamb up by 11.2 per cent and the price of fish by 3.3 per cent, largely driven by drought

ASFA found that the lump sum necessary to fund a modest retirement had grown dramatically for a couple, from $35,000 to $70,000 in the past year. For a single, the necessary balance rose from $50,000 to $70,000.

“The changes in the needs of a modest lifestyle were driven by changes in consumption patterns, the introduction of new goods and services and developments in community living standards,” ASFA said.

While it may sound counter-intuitive, ASFA calculates singles need a larger lump sum than couples for a modest retirement. That is because couples get a larger combined pension than singles do which allows them to cover more easily joint costs like housing, a car and utilities bills.

For those wanting a comfortable lifestyle, the necessary balances for couples remained unchanged at $640,000 and for singles the figure was $545,000. Because these groups rely less on the age pension than modest lifestyle retirees, couples need larger balances than singles.

The majority of Australians are not retiring with enough money to afford ASFA’s “comfortable” retirement. However, figures from research house Roy Morgan show that wealth among retirees is growing.

Late last year it reported that those planning to retire in the year from September 2018 had average savings of $331,000, compared with $306,000 in 2016 and $231,000 in 2008. Super was responsible for the growth, with average non-super savings actually falling from $112,000 to $103,000 over the period, while super grew.

Paul Versteege, policy director with the Combined Pensioners and Superannuants Association, said that because pensions were indexed to the CPI, retirees reliant on a full or part pension [who did not smoke] would see their living standards improve slightly in the coming six months.

“But it doesn’t feel like that to them because there is always a presumption that things are worse than the figures show. The preconception is worsened by economic uncertainty created by divergent figures,” he said.

Peter Davidson, senior adviser to the Australian Council of Social Services, said the financial wellbeing of retirees was not determined by simple cost-of-living figures.

“What keeps many retired people awake at night is the concern that they won’t be able to afford decent care when they need it. They’ve observed the steady ramping-up of fees and charges including up-front deposits [for aged care places].

“They also know about the long waitlists for care in their own home.  If aged care is not reformed and properly funded, we are heading towards a two-tiered aged care system where there are marked differences in the facilities offered to those who can afford to pay more,”  Mr Davidson said.

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