The new cost of a comfortable retirement revealed: What the latest figures mean for you

Australia’s retirees are facing an uphill battle as the cost of a comfortable retirement continues to surge, putting significant pressure on household budgets.

The latest findings from the Association of Superannuation Funds of Australia (ASFA) reveal that achieving a comfortable retirement standard is becoming increasingly challenging.

According to the latest findings from ASFA, retirees are grappling with a 1.3 per cent surge in annual expenditures, reaching a historic high of $71,724 per year for couples in the September quarter.

Singles aren’t spared from the financial strain either, with a 1.5 per cent increase pushing their annual expenditure to $50,981. This brings the total annual hike to a staggering 5.5 per cent, mirroring the 5.4 per cent surge in the general Consumer Price Index (CPI).

“Retiree budgets have been under sustained pressure for the last two years,” remarked ASFA Interim CEO, Leeanne Turner.

“In the past 12 months alone utility prices have surged more than 12 per cent as the cost of electricity, water, and gas continues to rise.”

Electricity costs, a significant contributor to the financial burden, witnessed an average increase of 4.2 per cent in the September quarter. For households ineligible for electricity rebates, including retirees in certain states without Age Pension or Seniors Health Care Card eligibility, the surge reached a staggering 18.6 per cent, exacerbating financial woes.

Housing costs also played a pivotal role in the mounting financial strain, with council rates surging by 4.4 per cent and water and sewerage charges seeing a 4.7 per cent increase in the quarter. These increases, while typical for the September quarter, are nevertheless exacerbating the financial tightrope seniors are walking.

The pain at the petrol pump is yet another source of concern. Fuel prices soared by 7.2 per cent in the September quarter, marking the highest quarterly rise since March 2022. The repercussions of this increase ripple through retirees’ budgets, impacting their ability to maintain the desired standard of living.

Specific areas experiencing substantial quarterly price hikes include:

Insurance: A noteworthy 2.8 per cent increase across house, house contents, and motor vehicle insurance—the most robust quarterly rise since 2000.

Medical and Hospital Services: A 1.0 per cent increase, attributed to private health insurance providers raising premiums post-freeze and the indexation of Medical Benefits Schedule fees from July 2023.

Dental Services: A 2.5 per cent rise fueled by escalating wages and input costs.

Telecommunication Services: A significant 1.9 per cent surge, the most substantial quarterly increase since 2000, as telecommunication providers raised mobile and internet plan costs.

Postal Services: An alarming 8.2 per cent rise due to heightened fuel costs and increased postage rates for parcel delivery.

However, amidst the financial storm, there are pockets of relief. Annual food inflation, a significant component of retirees’ budgets, eased to 4.8 per cent in the September quarter, down from 7.5 per cent in June. Fruit and vegetable prices even experienced a 6.4 per cent decrease compared to the previous year.

With essential expenses skyrocketing and economic uncertainties prevailing, those approaching retirement find themselves in uncharted waters, emphasising the need for thoughtful financial planning to ensure your golden years truly live up to their name.

A financial plan is essential for a successful retirement as it helps you make informed decisions about your financial future and ensures that you have enough resources to support yourself throughout your retirement years.

Sydney-based Wealth Coach Andrew Woodward from The Investor’s Way,  suggested that “to create a plan for your money you first need to understand how much is coming in, and from where, and then how much is going out.”

“Knowing how much is coming in should be relatively straightforward, it will either be in the form of a pension, investment income, superannuation or a combination of all,” he said.

It’s recommended that retirees review their expenses regularly and keep on top of what they have spent in the previous 12 months.

“Once you review what you were spending, you can then anticipate what you need to spend in the coming 12 months,” Woodward advises.

“Anticipating what you need to spend in the coming 12 months, and beyond, requires making some judgements on price increases and your needs, like potentially additional medical expense, and of course the impact of inflation on almost everything.

“Once you have an understanding of the incoming and outgoing of your money, put it into a plan and stick to it.”

There are several ways to put a financial plan into place to manage your retirement and ensure you have adequate funds put away to finance the retirement of your dreams. Founder and CEO of Stockspot, Chris Brycki cited some of the “common approaches” for managing finances in retirement which include:

• Line item budget which is a detailed budget that lists out all your expenses by category (such as housing, food, travel, and entertainment) along with their respective amounts.
• Zero-based budget includes listing all your income, then subtracting your expenses. Brycki points out that every dollar should be assigned to a specific expense or savings category with nothing left remaining.
• Percentage-based budget entails a retiree allocating a certain percentage of their income to each expense category, such as 25 per cent for rent, 12 per cent allocated to food, 10 per cent to spend on travel.