New figures from the Association of Superannuation Funds of Australia (ASFA) show Australia's retirees will need to spend more to fund their retirement, as an increase in the cost of medical and hospital services placed pressure on household budgets in the June quarter.
In the last quarter of the 2013/14 financial year, the expenditure required for couples wanting to live a 'comfortable' retirement rose by 0.5 per cent to $58,128 per year. This would require them to save a joint superannuation balance of around $510,000. Couples seeking a 'modest' retirement lifestyle will need to spend $33,664 a year, also up 0.5 per cent from the previous quarter.
Single retirees faced a similar increase in costs, with expenditure for a 'modest' retirement recording a 0.5 per cent increase from the previous quarter to $23,363 per year. Singles seeking a 'comfortable' retirement will now need to spend $42,433 a year, a slightly lower increase of 0.4 per cent from the previous quarter. This would require a balance of around $430,000 in super savings to generate this income annually.
The most significant price rise this quarter was for medical and hospital services (+4.6 per cent), which occurred mainly as a result of the increases in private health fund premiums effective from 1 April 2014.
Electricity prices were largely unchanged in the quarter, which will come as a relief for many retirees.
For the food group, a spike in lamb and goat prices (+8.3 per cent) and other meats (+4.8 per cent) was partially offset by falls in vegetables (-1.4 per cent) and fruit (-1.4 per cent) for the June quarter.
Price falls in domestic holiday travel and accommodation (-3.8 per cent), automotive fuel (-2.7 per cent) and telecommunication equipment and services (-1.6 per cent) were offset by rises in international holiday travel and accommodation (+3.6 per cent).
ASFA CEO Ms Pauline Vamos says it is important people understand the different pressures that their budget will face in retirement, so they can plan to save enough to fund the lifestyle they want.
"Big jumps in the cost of items such as health care and medicines can hit retirees hard, particularly if they don't have much money to spare. This is where saving more superannuation can give you peace of mind, knowing that you will be able to cope financially as costs increase.
"Knowing how much you will need to spend in retirement is also a good first step in planning to save more. The younger you are, the more your retirement savings will benefit from the effects of compound interest.
"Every dollar you put away before age 30 could be an additional seven dollars you have in super savings when you finish working. This is why it's important to start planning early for the retirement you want and how you will save to get there," Ms Vamos concluded.
Table 1: Budgets for various households and living standards (June quarter 2014, national)
lifestyle – single
lifestyle – couple
|Comfortable lifestyle – single
||Comfortable lifestyle – couple
|Housing – ongoing only
|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. Single calculations are based on female figures. All calculations are weekly, unless otherwise stated.
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.
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.
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 occasional international holiday travel. To find out more, see the Super Guru page.
For further information, please contact:
Lisa Chikarovski, Media Manager, 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, which aims to advance effective retirement outcomes for members of funds through research, advocacy and the development of policy and industry best practice.