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Housing-related costs placing strain on retiree budgets: ASFA Retirement Standard September quarter

Media Release 5 November 2013

5 November 2013

Housing-related costs placing strain on retiree budgets: ASFA Retirement Standard September quarter

New figures from the Association of Superannuation Funds of Australia (ASFA) have once again highlighted the importance of saving for retirement as the cost of living continues to rise for Australia’s retirees. In the September quarter, the expenditure required for couples wanting to live a ‘comfortable’ retirement rose by 1.4 per cent to $57,195 per year. This would require a joint superannuation balance of around $510,000 to achieve this.

Couples seeking a ‘modest’ retirement lifestyle will need to spend $33,120 a year, up 1.5 per cent from the previous quarter.

However it was single retirees who faced the greatest increase in costs, with expenditure for a ‘modest’ retirement recording a 1.7 per cent increase on the previous quarter to $23,032 per year. This was largely attributed to a jump in housing-related costs, electricity and transport, which often form a large part of budgets for retirees in this category.

Singles seeking a ‘comfortable’ retirement will now need to spend $41,830 a year, an increase of 1.5 per cent on the previous quarter, and require a super balance of around $430,000.

A jump in the price of electricity (+4.4 per cent), property rates and charges (+7.9 per cent), and water and sewerage rates (+9.9 per cent) drove much of the overall increase, while the price of health services (no change) and food (+2.2 per cent) remained fairly stable.

ASFA CEO Ms Pauline Vamos said it’s important policy makers take into account the different spending patterns of retirees when looking at the impact of inflation on the cost of living for this group.

“This quarter’s substantial increase in the cost of items such as electricity, petrol, council and water rates have the potential to hit retirees hard, as they often have less flexibility in their budgets to accommodate additional expenditure in areas where there is less discretionary choice,” Ms Vamos said.

“Likewise, expenditure on health services and food often make up a large portion of retirees’ budgets, so it’s encouraging to see prices in this area have remained fairly stable this quarter,” Ms Vamos concluded.

Table 1: Budgets for various households and living standards (September quarter 2013, national)

Modest lifestyle
– single
Modest lifestyle
– couple
Comfortable lifestyle
– single
Comfortable lifestyle
– couple
Housing – ongoing only $63.11 $60.58 $73.14 $84.79
Energy $42.95 $57.04 $43.59 $59.11
Food $74.45 $154.23 $106.36 $191.45
Clothing $18.16 $29.47 $39.30 $58.95
Household goods and services $26.47 $35.89 $74.46 $87.23
Health $38.80 $74.89 $76.98 $135.87
Transport $95.87 $98.59 $142.87 $145.58
Leisure $71.61 $106.69 $217.02 $297.40
Communications $9.50 $16.63 $26.10 $33.22
Total per week $441.71 $635.19 $802.22 $1,096.90
Total per year $23,032 $33,120 $41,830 $57,195

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.

There were significant increases from the previous quarter in the price of electricity (+4.4 per cent) and also in housing-related items such as property rates and charges (+7.9 per cent) and water and sewerage (+9.9 per cent). Utility prices increased because of a range of factors which varied from state to state. Property rates and charges increased as a result of the annual review of rates charged by local councils.

There was also a relatively large increase in the cost of transport, mainly due to a 7.6 per cent increase in the price of petrol compared to the previous quarter.

The ‘recreation and culture’ group rose in the September 2013 quarter. The main contributors to the rise were increases in the cost of international holiday travel and accommodation (+6.1 per cent) and domestic holiday travel and accommodation (+3.5 per cent). The rise was partially offset by falls in the cost of games, toys and hobbies (-1.8 per cent) and audio, visual and computing equipment (-0.8 per cent). International holiday travel and accommodation prices increased by 6.1 per cent, primarily due to increased airfare prices to most destinations coinciding with the shoulder/peak season in Asia, Europe and America.

There was a small increase (0.2 per cent) in the cost of food in the September quarter. The main contributor to the rise was fruit (+3.2 per cent), take away and fast foods (+0.6 per cent) and restaurant meals (+0.5 per cent). The rise was partially offset by a fall in vegetables (-4.5 per cent). The fall in vegetable prices was mainly due to favourable growing and weather conditions. Over the 12 months to the September quarter 2013, the ‘food and non-alcoholic beverages’ group fell 0.6 per cent. The main contributor to the fall was vegetables (-10.7 per cent). The fall was partially offset by rises in the cost of take away and fast foods (+2.0 per cent) and restaurant meals (+1.4 per cent).

The ‘health’ group recorded no movement in the September quarter 2013. A positive movement was recorded for medical and hospital service costs (+0.4 per cent), which was offset by a fall in pharmaceutical product prices (-1.1 per cent).

Over the 12 months to the September quarter 2013, the health group rose 4.1 per cent. The main contributor to the rise was medical and hospital services (+5.6 per cent), which rose mainly as a result of the increases in private health fund insurance premiums, effective from 1 April 2013.

Super balances required to achieve a comfortable or modest lifestyle in retirement

In order to fund a comfortable lifestyle in retirement, a couple would need around $510,000 in superannuation and other income-producing assets. This estimate is based on the assumption that both members of the couple do not retire before qualifying for the Age Pension. Over the retirement period, the couple will receive at least a part Age Pension, which may increase to be the full Age Pension as they draw down on their superannuation savings.

For a single person, the amount of superannuation and other savings needed to support a comfortable lifestyle in retirement is around $430,000. Again, this assumes receipt of at least a part Age Pension for most of their retirement period, with the Age Pension component increasing as superannuation savings are drawn down.

To achieve a modest lifestyle in retirement, only very modest superannuation savings are needed if retirement starts at Age Pension eligibility age. For a couple, the lump sum amount of required savings is $35,000 and for a single person it is $50,000. The reason that the required retirement savings amounts are relatively low is that, after recent increases, the Age Pension is not far short of the budgets required for a modest standard of living in retirement.

More information

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.

About the ASFA Retirement Standard

The ASFA Retirement Standard is an initiative by the Association of Superannuation Funds of Australia (ASFA) benchmarking the annual budget needed by Australians to fund either a ‘comfortable’ or ‘modest’ standard of living in people’s post-work years.

It is updated quarterly to reflect inflation and provides detailed budgets of what singles and couples would need to spend to support their chosen lifestyle.

Modest lifestyle in retirement

Better than the Age Pension, but people are still only able to afford fairly basic activities.

Comfortable retirement lifestyle

Enabling an older, healthy retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of such things as; household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally international holiday travel.

For further information, please contact:

Lisa Chikarovski, 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 whose aim is 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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