Yahoo Finance Super inflation: Annual retirement cost surges $11,460 in 5 years
As the cost of living has jumped, so too has the cost of retirement.
Everyone knows the price of virtually everything has hiked over the past year or so as we continue to grapple with the cost-of-living crisis. So, if you’re a retiree who feels like 2023 was the most expensive year yet, that’s because it was.
The cost of retirement, and how much superannuation you now need to comfortably live when you finish working, has also jumped. In 2023, the cost of a comfortable retirement is $71,724 for couples and $50,981 for singles.
Concerned by how much retirees are being affected by our inflation problem, I dug out the Retirement Standard figures from the Association of Superannuation Funds of Australia (ASFA) for 2018.
It shows that, just five years ago, couples aged 65 needed to spend $60,264 per year. For singles, that figure was $42,764. That’s an annual increase of up to $11,460 in the past five years alone.
And, when I say comfortable, I don’t mean lavish. Here’s a look at where costs have risen the most and where there is a surprise silver lining.
How 'comfortable' retirement costs have risen in the past five years
Spend category | Cost in 2018 | Cost in 2023 | ||
Singles | Couples | Singles | Couples | |
Food | $115.10 | $200.00 | $141.00 | $245.07 |
Clothing and footwear | $26.90 | $50.00 | $28.12 | $52.37 |
Housing | $114.00 | $119.20 | $137.55 | $143.57 |
Energy | $47.90 | $59.40 | $50.83 | $63.04 |
Household goods and services | $73.10 | $89.85 | $85.35 | $105.63 |
Health | $97.20 | $181.70 | $113.09 | $211.89 |
Transport | $142.00 | $154.10 | $179.38 | $194.25 |
Recreation | $178.50 | $268.10 | $218.53 | $328.53 |
Communication | $24.70 | $32.15 | $22.79 | $29.66 |
Total per week | $819.20 | $1,154.50 | $976.65 | $1,374.01 |
Total per year | $42,764 | $60,264 | $50,981 | $71,724 |
Source: ASFA Retirement Standard/Yahoo Finance
The good news is some items cost little more than they did five years ago. It makes sense - when you consider where inflation has been spiking and competition and cheaper production has kept prices in check - that the prices of clothing and footwear have increased hardly at all. Oddly, energy, under this metric, has barely budged since 2018 either.
So, where is the hip-pocket pain hitting the most? The leap in transport costs is the biggest – retirees are paying 26 per cent more, which higher petrol costs would mostly account for.
But food hikes are almost as high at 23 per cent, as the higher price of petrol, labour, and supply chain issues have ‘fed’ in.
Also by Nicole Pedersen-McKinnon:
Recreation costs include some, but not a lot, of meals out ($96.06 a week for a couple and $68.61 a week for a single) and a bit of domestic travel ($85.86 for couples is reserved a week and $56.41 for singles) and international travel ($37.68 for couples and $23.78 for singles).
Alcohol consumption is assumed to set you back $45.67 a week for a couple or $21.88 for a single, or the equivalent amount spent with charity or church. Overall, the leisure category is up 23 per cent.
It will be no surprise that health costs have increased 17 per cent, which takes in health insurance premium increases and out-of-pocket costs.
Note there are no mortgage or rental costs in the above figures. It’s assumed you own your own home outright by the time you retire (which makes for a challenging but crucial goal).
However, housing costs are up regardless, a category that takes in insurance, water, rates and repairs and improvements.
And ‘household goods and services’, though it hasn’t risen much, contains not just items to keep your home running, but to clean it, as well as personal-care purchases for yourself (including hairdressing).
It’s also interesting that exactly five years ago, the categories of spend that were included were amended to reflect “increasingly prevalent technology”. Just one area, on the face of it, has gone down: communication. But it’s now a narrower category specifically of “bundle of home phone, broadband, mobile”. Streaming services as well, $12.03 a week for every household (in the recreation or leisure category), have been added.
The lump sum you need to cover your costs – then and now
As the 2018 release explains: “The comfortable-standard budget affords a much more dignified existence for Australian retirees while the modest budget is nearer the basic Age Pension level subsistence.”
At the time, the actual overall annual spend for a ‘modest’ (rather than ‘comfortable’) standard of retirement was just $27,368 for singles and $39,353 for couples.
But fast forward to 2023, and the annual spend figures are $32,417 for a single and $46,620 for a couple. So, even modest retirement costs are around 18 per cent higher today.
Here’s how these figures translate to the bulk sum needed for both a modest and comfortable retirements.
In 2018, the estimated lump sum for a modest retirement was $70,000 for a single and a couple. Today the estimated lump sum for a modest retirement is significantly higher at $100,000.
It might seem bizarre that they were the same but it’s because the Age Pension would provide the bulk of required income for both, with superannuation funding the gap between the full Age Pension and the amount in the modest budget.
Even ASFA’s comfortable retirement figures assume you claim an age pension – and more of it over time. So ASFA’s are more achievable than many other estimates because they assume you draw down on your lump sum until it is ultimately exhausted, and thus get incrementally higher age pension top-ups over time.
But what about the numbers for a ‘comfortable’ retirement at the age of 67?
For a comfortable retirement in 2018, couples needed a bulk sum of $640,000 while singles needed $545,000 - it, in fact, stayed at that level for years.
But, in March this year, ASFA adjusted them upwards by $50,000 – to $690,000 for a couple and $595,000 for a single.
Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, Twitter and Instagram.
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