New data has found that the cost of a comfortable retirement has gone up over the past three months with the increase being linked to the rise in childcare costs — despite not typically being relevant to retirement budgets.
The figures come from the Association of Superannuation Funds of Australia (ASFA) Retirement Standard for the September quarter in 2020, which found that couples aged around 65 who were living comfortably in retirement needed to spend $62,083 every year while singles needed to spend $43,901.
In comparison to the previous quarter’s figures, these costs were up 0.3 per cent for couples and 0.5 per cent for singles. ASFA linked the overall increase in the September quarter CPI of 0.7 per cent to the rise in child care expenses after the free childcare initiative ended in July, which in turn impacted retirement costs.
With international and some domestic travel restrictions still in place, the report also found that grey nomads have been redirecting their funds that would’ve otherwise been spent on holidays. Instead of jetting off or forking out for entertainment or dining-out options, many people are now redistributing money back into their home by spending on repairs, renovations and appliances instead.
“Covid-19 has had a substantial impact on Australia’s financial and economic conditions but there has been a partial unwinding of both price increases and decreases that immediately flowed from the impact of the pandemic,” ASFA CEO, Dr Martin Fahy said.
“Dramatic changes in our lifestyles had a big impact on demand and prices right across the economy but for at least some categories of expenditure there is a return to something closer to normal.”
The prices that have started to return to normal include the cost of certain food products that fell with a return to regular discounting cycles after the peak of the pandemic and the height of panic buying. On the other hand, fuel prices over the September quarter increased by 9.4 per cent as demand in Australia increased.
The cost of health insurance premiums were frozen during the September quarter due to the scheduled April increase being deferred for six months in light of the pandemic. However, these rates have now risen from October 1 with comparison website Choice saying health funds would lift by 2.92 per cent on average with some rising as high as 5.6 per cent.
For wage earners, the rise of retirement living costs has highlighted the need for the Superannuation Guarantee (SG) to go ahead with its legislated increase from 9.5 per cent to 12 per cent. ASFA also argued this in response to the long-awaited Retirement Income Review in which the government said that increasing the SG would “result in lower wages growth, and would affect living standards in working life”.
ASFA noted that over the year to September 2020, wages grew by only 1.4 per cent on average and by 1.3 per cent in the private sector saying that “increases in retirement costs are outstripping growth in wages and higher contributions are needed for future retirees to achieve the standard of living they want and deserve in retirement”.