4 May 2018
Bringing retirement budgets into the digital age
The Association of Superannuation Funds (ASFA) today released Retirement Standard (RS) budgets for the March quarter 2018.
The comfortable standard budget affords a much more dignified existence for Australian retirees while the modest budget is nearer the basic Age Pension level subsistence.
The ASFA Retirement Standard March quarter 2018 figures show couples aged around 65 living a comfortable retirement need to spend $60,264 per year and singles $42,764.
At the modest level, singles need to spend $27,368 and couples $39,353.
The aggregate figures at the comfortable level are slightly different in total from previously published figures for the September quarter 2017 (the most recent quarter for which figures have been published). However, there are some significant differences in the component expenditure items which are covered in more detail below in Attachment A. In particular, an assessment of the cost of increasingly prevalent technology has been included.
Compared to the September quarter, the changes to the modest budgets are greater than for comfortable, with expenditure for singles up from the previous $24,506 and for couples from $35,189 reflecting price increases, more detailed pricing of items and changes in the package of goods and services in the budgets.
The estimates of savings within superannuation to provide a modest retirement are now $70,000 for singles and $70,000 for couples. The figures are the same given that the Age Pension will provide the bulk of required income for both singles and couples, with superannuation funding the gap between the full Age Pension and the amount in the modest budget
Given that the budgets at the comfortable level are not much different in total to those previously published, the estimates of savings required at retirement remain unchanged at $640,000 for a couple and $545,000 for a single person. Allowing for receipt of a part Age Pension, future investment returns and drawdown of capital, these lump sums allow a single or couple retiree to maintain the given expenditures well into their nineties.
Along with updating budget items for price increases and providing more detailed information on items such as water charges, other significant changes have been made in the budgets to reflect new products and services. These include subscriptions to digital streaming of music and movies and television programs. The budgets also make allowance for broadband internet connection with substantial downloads.
“While the revised budgets at the comfortable level have not changed much from the previous budgets, many retirees will still find it difficult to achieve a comfortable standard of living in retirement,” ASFA CEO Dr Martin Fahy warned.
“If more than 20 per cent of retirees are to reach the comfortable standard or above, an increase in the Superannuation Guarantee is crucial.”
Attachment A: Changes to the ASFA Retirement Standards
The revised budgets focus on the necessities of life for retirees. For the first time water charges are broken out from the figure for Council and other rates. Council and water rates are substantial for most households and the revised budgets take into account the fact that these costs have tended to increase at a rate greater than many other items in the Consumer Price Index.
The costs for private health insurance have been explicitly priced for various levels of cover and allowance has been made for the considerable out of pocket expenses that can be associated with surgical procedures and with the continuing purchase of prescription and other medicines.
Enjoying retirement rather than just surviving is also important. The revised budgets include leisure activities in Australia, including eating out and going to the cinema, concerts and the like. The budgets continue to assume occasional overseas travel at the comfortable level, a major trip every seven years or a Pacific cruise or other less expensive overseas holiday more frequently (in line with what many Australians do).
The following table provides a breakdown of the various expenditures.
Table 1: Budgets for various households and living standards for those aged around 65 (March quarter 2018, national)
|Clothing and footwear
|Household goods and services
|Total per week
|Total per year
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. All calculations are weekly, unless otherwise stated.
The publication of budgets for those aged over 85 will resume with the publication of budgets for the June quarter 2018, which are due to be published in August/September this year.
More generally, it is important to keep expenditure in the budgets relevant to the needs of those retiring now and in the future. This involves both regular adjustments for the impact of general price increases and adjustments from time to time for developments in consumption patterns and community living standards.
The use of CPI data to adjust the budgets for price changes for the various goods and services included in the budgets is standard practice in the budget standards and retirement standards literature. Over the short-term—a period which various researchers have indicated is in the order of around seven years—this will not result in any major errors into the estimates in terms of overall required expenditure and the size of various components of the budgets.
However, there is a risk that while adjusting budgets only for movements in applicable consumer price indexes will, over the longer-term, maintain the purchasing power of the budgets it will lead to a cumulative decline in their value relative to community living standards, which increase in line with economic growth and community prosperity.
Other developments require the Retirement Standards to be revised from time to time in order to maintain their relevance. New items become available and popular among consumers; this affects how people run their lives and creates pressure for others to do likewise if they are to function effectively in society as individuals and as consumers. For instance, when almost everyone else has a mobile phone or a broadband internet connection, it becomes near impossible for anyone to manage without one. An item that was once seen as a relative ‘luxury’ quickly becomes an absolute ‘necessity’. Technology also changes, with, for instance, subscriptions to streaming services substantially replacing purchase of compact discs or DVDs. Changes of this nature have been made in the revised budgets.
More detailed information on the components of the budgets and the background to the ASFA Retirement Standard can be accessed via the ASFA website.
There is also a comprehensive report which sets out the detailed explanations supporting the revisions that have been made.
The ASFA Retirement Tracker calculator can be used so Australians can find out more about what level of standard of living you might achieve in retirement based on your current superannuation balance, compulsory contributions and any voluntary contributions you might make. This calculator is on the Super Guru website.
For further information, please contact:
Katrina Horrobin, 0451 949 300.
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. ASFA’s mission is to continuously improve the superannuation system so people can live in retirement with increasing prosperity.