The dream of a comfortable retirement is becoming increasingly elusive for many Australians, as the cost of living continues to rise. High insurance, electricity, and food costs have pushed the annual cost of a comfortable retirement above $72,000 for a couple. This alarming trend underscores the importance of early planning for life after work.

According to new figures from the Association of Superannuation Funds of Australia (ASFA), a couple aged about 65 must spend $1382 a week to maintain a comfortable lifestyle, while a single person must spend $982. These figures are significantly higher than current age pension payments, highlighting the growing gap between government support and the actual cost of living.

ASFA’s retirement standard for the December quarter reached a record high of $72,148 for couples and $51,278 for singles, representing a 3.5 per cent increase over 2023. This is below the official CPI inflation figure of 4.1 per cent. ASFA CEO Mary Delahunty explained that the lower figure reflects substantial CPI increases in areas not affecting the retirement standard, such as tertiary and secondary education, sports participation, and tobacco.

The leading contributors to the rising retirement costs were a 16.2 per cent increase in insurance prices in 2023, and food and electricity prices climbing more than the general CPI. Ms Delahunty noted that the increase in compulsory Super Guarantee payments to 12 per cent by mid-2025 would help more people reach ASFA’s comfortable retirement standard level, with about half of retirees expected to achieve it by 2050.

To reach this standard today, a couple needs a combined super balance of $690,000 and a single person needs $595,000, combined with some age pension. Leisure spending is the largest component of comfortable retirement budgets, at almost $333 per week for a couple. This category includes travel, sporting activities, dining out, cinema visits, and streaming service subscriptions.

In the wake of the Covid peak, domestic and international holidays have become more affordable. The retirement standard budgets assume an annual domestic trip and an international trip once every seven years at the comfortable level.

Sonia Dallimore, a financial planner at Vista Financial Group, emphasises the importance of seeking retirement advice early. She states, “Achieving a comfortable retirement doesn’t happen by accident. It requires careful planning and informed decision-making. The sooner you start planning for your retirement, the more options you’ll have and the better prepared you’ll be to face any financial challenges that may arise. Don’t leave your future to chance. Seek advice and start planning as early as possible.”

The comfortable retirement standard allows retirees to maintain a good standard of living in their post-work years. It covers daily essentials such as groceries, transport, and home repairs, as well as private health insurance, a range of exercise and leisure activities, and the occasional restaurant meal. Importantly, it enables retirees to stay connected to family and friends both virtually, through technology, and in person with an annual domestic trip and an international trip once every seven years.

The ASFA Retirement Standard Explainer outlines the lump sum amount needed by the average Australian to fund a comfortable and modest retirement (for both couples and singles) and explains the methodology behind the calculations. It assumes that the retiree will draw down all their capital and receive a part Age Pension.

According to research, 53% of older Australians believe they will outlive their savings. A study by National Seniors Australia and Challenger reveals that most older people are increasingly concerned about the rising costs of living, with four in five reporting that it has negatively impacted their lifestyle and wellbeing.

The report, The Cost of Living and Older Australians’ Financial Wellbeing, based on the 2023 National Seniors Social Survey of almost 6,000 people aged 50 and over, explores how cost-of-living pressures are affecting the financial security of older Australians.

Over half the survey respondents (53%) said they thought they would outlive their savings, and 85% of them were worried about that. Those concerned about long-term cost-of-living struggles were five times more likely to be concerned about this scenario.

Older people are typically thought to be protected from the more severe impacts of increasing living costs due to their relatively high rates of home ownership. However, this is not the case. Older people experience less overt challenges to their financial wellbeing that undermine financial security and overall quality of life. These effects vary depending on age, gender, partner status, health, wealth, home ownership, and sources of income.

The results are clear: recent increases in the cost of living in Australia have impacted older people’s financial wellbeing across all three of its components: meeting expenses, being in control of finances, and feeling financially secure.

Eighty-three per cent of survey respondents believed they would continue to feel the impact of cost-of-living on their lifestyle over the 12-month period following the February survey. People with less savings, people who don’t own their home, younger age groups, those in poor health, and women were the groups most likely to hold long-term concerns about the rising cost of living.

Being able to afford essentials was the highest cause for concern, with respondents listing health, energy, and grocery expenses as the top three pain points. For most, managing their financial situation meant cutting back. Almost two-thirds of respondents (62%) chose this as an option they could use to adjust to increasing cost-of-living pressures.

Cutting spending is not a sustainable long-term strategy for older Australians to manage rising costs of living, with the impacts of this issue set to be long-lasting. An important factor for retirement wellbeing is having the financial capacity to maintain living standards that were enjoyed before retirement.

To manage the concern about outliving savings, 83 percent of those surveyed reported they want money that lasts a lifetime, and income that increases with inflation is also a top financial priority for most. Regular income for essentials (91%) and being able to afford care and medical costs (86%) were also crucial to long-term confidence.

Financial wellbeing is critical to quality of life in older age, and rapidly increasing living costs are undermining the financial wellbeing of older people. Finding ways to mitigate worry and giving greater confidence that they will always have the income to meet these essential expenses will improve people’s wellbeing and quality of later life. A guaranteed and adequate income stream provides a lot of reassurance and comfort to older Australians battling rising costs.

After nearly 30 years of relative stability in the cost of living, retirement planning and financial advice must better address the potential effects of inflation in undermining people’s control over their finances.

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