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 March quarter, the expenditure required for couples wanting to live a 'comfortable' retirement rose by 0.3 per cent to $57,817 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 $33,509 a year, 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 $23,283 per year.
Singles seeking a 'comfortable' retirement will now need to spend $42,254 a year, an increase of 0.2 per cent from the previous quarter, and require a super balance of around $430,000.
Over the year to the March quarter, the cost of retirement increased by 2.7 per cent at the comfortable level and 2.8 per cent at the modest level.
The quarterly and annual increases were similar to those for the All Groups CPI, which rose by 0.6 per cent in the quarter and by 2.9 per cent over the year.
The most significant price rises in the quarter for retirement budgets were for automotive fuel (+4.1 per cent), medical and hospital services (+1.9 per cent) and pharmaceutical services (+6.1 per cent).
The most significant price decreases, which offset rising prices this quarter were for the maintenance and repair of motor vehicles (-3.3 per cent), international holiday travel and accommodation (-2.4 per cent) and domestic holiday travel and accommodation (-2.4 per cent). The price of clothing and footwear fell in the March quarter 2014, mainly due to post-Christmas sales. The main contributors to the decrease were the cost of: garments for men (-2.9 per cent), accessories (-2.2 per cent) and garments for women (-1.2 per cent).
Electricity prices rose by 1.4 per cent in the quarter, but they did not rise in all states or territories.
ASFA CEO Ms Pauline Vamos says, with the government set to release its first budget next week, it's important they consider the impact policy changes may have on the cost of living for Australia's retirees.
"Retirees often have less flexibility in their budgets, which means policy changes that increase the cost of non-discretionary items, such as electricity or fuel, may mean they have to cut back in other areas, and lower their standard of living.
"Rising costs also highlights the importance of superannuation, to ensure people have enough money to live the lifestyle they expect in retirement, for all their post-work years," Ms Vamos concluded.
Table 1: Budgets for various households and living standards (March 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.
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.