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Retirement costs increase outpaces general rise in CPI: ASFA Retirement Standard September quarter

Media Release 4 December 2016

4 December 2016

Retirement costs increase outpaces general rise in CPI: ASFA Retirement Standard September quarter

Retirees have experienced a slight increase in the cost of living in the September quarter, according to the Association of Superannuation Funds of Australia (ASFA) Retirement Standard.

Prices were up for fruit and vegetables, electricity and property rates and charges.

The ASFA Retirement Standard September quarter figures indicate that couples aged around 65 living a comfortable retirement need to spend $59,619 per year and singles $43,372, 0.8 per cent higher for both compared to the previous quarter.

Budgets for older retirees (those aged 85 and over) increased by 0.9 per cent. The Consumer Price Index (CPI) rose 0.7 per cent in the September quarter 2016, according to the latest Australian Bureau of Statistics (ABS) figures.

Over the 12 months to the September quarter, the budgets at the comfortable level rose by 1.2 per cent, compared to 1.3 per cent growth in the overall CPI.

ASFA CEO Dr Martin Fahy said annual growth in the overall Consumer Price Index remained low but retirees faced a number of cost increases in the September quarter.

“The increase in cost of living in retirement highlights the need for saving an adequate amount for retirement,” he said.

“In order to achieve a comfortable standard of living in retirement, an individual requires a minimum of around $545,000 and a couple around $640,000.”

Currently, less than 20 per cent of single people aged more than 65 are able to support a standard of living at or above the ASFA comfortable level. Only around 30 per cent of all couples are able to support a standard of living at that level.

Dr Fahy said the percentages would lift to 50 per cent or more of retirees, provided the rate of compulsory contributions rises to 12 per cent and individuals make voluntary contributions.

“A low interest rate and investment return environment provides challenges, although a low inflation rate by historical standards is of some assistance to current and future retirees,” he said.

In calculating the lump sums needed, ASFA has revised downwards its previously assumed long term nominal investment return from 7 per cent a year to 6 per cent a year, while at the same time reducing the assumed growth in future community living standards from 3.75 per cent to 2.75 per cent a year, in line with recent subdued average wages growth in Australia.

Both the choice of investment option and rate of contributions will be crucial for standard of living in retirement.

Dr Fahy said ASFA encourages people to get in touch with their superannuation fund or adviser to find out what options are available, so they have the best chance of living their post-work years free from major financial worries.

In regard to the specific developments in the September quarter, the most significant price rises were fruit (+19.5 per cent), vegetables (+5.9 per cent), electricity (+5.4 per cent) and property rates and charges (+4.0 per cent).

The most significant offsetting price falls were automotive fuel (-2.9 per cent) and telecommunication equipment and services (-2.5 per cent).

It is not unusual for both property rates and charges and the cost of electricity to increase in the September quarter as the amounts that can be charged are reviewed on an annual basis by regulators in a number of States and Territories. In particular, the rise in the price of electricity was driven by increases in wholesale electricity costs across the eastern and southern states.

The availability of pensioner concessions and discounts is very important for many retirees, helping them to meet what are often substantial fixed or largely unavoidable costs in retirement.

For instance, in NSW, a pensioner concession card is estimated to save retirees about $1,470 a year, according to ASFA calculations. The sum includes a $630 reduction in water, sewerage and stormwater charges, a $300 discount on car registration, $250 discount on council rates, $235 discount on electricity and a $55 discount on the pensioner’s driver’s licence fee. A Telstra fixed line customer can also get up to $180 a year in discounts on call and access charges.

For most other living costs in retirement retirees have to meet the full cost of any price increases, which can be quite substantial. In this context the rise in fruit and vegetable prices was due to adverse weather conditions, including floods, in major growing areas, impacting supply and prices. Self-funded retirees also face higher costs than retirees who qualify for at least some age pension.

Table 1: Budgets for various households and living standards for those aged around 65 (September quarter 2016, national)

  Modest lifestyle Comfortable lifestyle
  Single Couple Single Couple
Housing – ongoing only $75.25 $72.23 $87.21 $101.10
Energy $42.98 $57.09 $43.62 $59.16
Food $78.39 $162.38 $111.98 $201.57
Clothing $17.71 $28.74 $38.32 $57.49
Household goods and services $27.56 $37.37 $77.53 $90.83
Health $44.24 $85.39 $87.78 $154.92
Transport $90.76 $93.33 $135.25 $137.82
Leisure $75.01 $111.76 $227.32 $311.52
Communications $8.28 $14.50 $22.76 $28.97
Total per week $460.19 $662.79 $831.79 $1,143.38
Total per year $23,996 $34,560 $43,372 $59,619

The figures in each case assume that the retiree/s own their own home and relate to expenditure by the household. This can be greater than household income after income tax where there is a drawdown on capital over the period of retirement. Single calculations are based on female figures. All calculations are weekly, unless otherwise stated.

Table 2: Budgets for various households and living standards for those aged around 85 (September quarter 2016, national)

  Modest lifestyle Comfortable lifestyle
  Single Couple Single Couple
Housing – ongoing only $75.25 $72.23 $87.21 $101.10
Energy $42.98 $57.09 $43.62 $59.16
Food $78.39 $162.38 $111.98 $201.57
Clothing $17.71 $28.75 $38.33 $57.48
Household goods and services $48.39 $68.60 $150.43 $174.12
Health $95.56 $148.36 $130.87 $208.79
Transport $37.76 $47.20 $42.48 $51.92
Leisure $47.79 $71.30 $123.53 $170.76
Communications $8.23 $14.41 $22.63 $28.80
Total per week $452.06 $670.32 $751.08 $1,053.69
Total per year $23,572 $34,952 $39,164 $54,942

The figures in each case assume that the retiree/s own their own home and relate to expenditure by the household. This can be greater than household income after income tax where there is a drawdown on capital over the period of retirement. Single calculations are based on female figures. All calculations are weekly, unless otherwise stated.

ASFA Retirement Standard
Costs and summary figures can be accessed via the ASFA website. The ASFA Retirement Standard Calculator can be used to obtain a breakdown of the Retirement Standard budgets for each state. Australians can find out more about superannuation on the independent Super Guru website.

For further information, please contact:

Teresa Mullan, Media Manager, 0451 949 300.

About ASFA

ASFA is the peak policy, research and advocacy body for Australia’s superannuation industry. It is a not-for-profit, sector-neutral, and non-party political national organisation, which aims to advance effective retirement outcomes for members of funds through research, advocacy and the development of policy and industry best practice.

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