The High Costs of Retirement in 2023

Written on the 13 September 2023 by Parkside InvestorPlus

If you are still employed and earning a regular salary, you will have noticed that your earned dollar does not stretch as far.

Given the combination of higher interest rates (assuming you have a mortgage) and general increase in living expenses, particularly utilities, fuel, insurances and other necessary services, there might not be as much left over at the end of the month.

And if you are now on the cusp of retirement, then rightfully you may be concerned about the future living standards of your retirement.

As a retiree, chances are that you no longer work, and your retirement income may not be rising at the same rate of inflation.

This can lead to retirees underspending because they are worried about the purchasing power of their income and equally important, how long that’s going to last for.

Without casting any blame, retirees have become accustomed to low inflation for the past decade – inflation during this period was not really an issue.

If you are still in your working phase of life, you may be able to cope and somehow compensate with the hope that inflation will be brought under control and your wage grows at a higher rate over time, (remember interest rates as at September 2023 may still be on the rise).

However, if you’re in your retirement phase or fast approaching it, for many Australians, any cost of living increases simply puts pressure on their standard of living.

There are many publications/articles that say if you plan to keep enjoying your current lifestyle when you retire, our experience tells us you’ll need to save enough to provide you with at least 70% of your current annual income.

The Association of Superannuation Funds of Australia (ASFA) reports regularly on the annual cost for singles and couples to achieve either a modest or comfortable lifestyle – while the numbers change on a regular basis, one thing is sure, given inflation has now reared its head, our cost of living has started to creep up.

In order to live a comfortable lifestyle, according to AFSA, you will need;

ASFA Budgets for various households and living standards for those aged 65-84 (December quarter 2022)

The above numbers continue to evolve given the rising cost of living and age care needs.

According to ASFA, their definition of a comfortable living standard in retirement is;

“The comfortable retirement standard allows retirees to maintain a good standard of living in their post work years. It accounts for 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.”

If you desires include regular overseas holidays, say once/year, then these numbers will increase.

According to ASFA’s deputy chief executive, Glan McCrea;

“Retiree budgets have been under substantial pressure for nearly two years due to high costs of essential goods and services”

And while there are ways of stretching your retirement dollar, there are many actions you can undertake to ensure a successful retirement.

To put some relevance to the lifestyle numbers needed for a comfortable retirement, by the time you reach the stated retirement age of 65, on average, a male would need $436,000 in their super fund while females would need $382,000.

According to ASFA, the lump sum needed for a comfortable retirement is now $690,000 for couples and $595,000 for singles. The superannuation industry peak body lifted its lump sum estimates in March to reflect the high rate of inflation, with ASFA also noting there has been no real increase in the age pension as price growth has been greater than the increase in average wages.

Here are some practical and pragmatic steps you undertake well before you reach retirement to ensure those wonderful years are as stress free as possible.

Fully understand your finances and financial goals

The first step in planning for your retirement is to have a clear understanding of your debt situation, income, assets and ongoing expenses.

How much income you need to retire on depends on your lifestyle aspirations as per the table above, or more!

Start saving for your retirement

Simply relying on your employer’s super guarantee of 11.0% or 12% or whatever the figure may be in the future, may not be enough.

Salary sacrificing your pre-tax income into your super fund offers substantial tax benefits, with amounts taxed at 15 percent – far lower than the tax on employment income.

Obviously, it’s best if you can enter your retirement phase as debt free as possible.

Pay down high-interest debt.

Save tax refunds and bonuses.

Ensure you have adequate health insurance – recent research estimates that an Australian couple will face yearly healthcare costs of between $4,975 and $9,900 in retirement.

Retirement trial run

Even if you're in the group that's looking forward to their retirement, you could find that it's not all that it's cracked up to be when you do get there - the reality has not met the expectations.

Just as you might take a car for a test drive before deciding on buying it, why not take your retirement out for a test drive?

Finally, if you haven’t already, make sure you’ve engaged a reputable, trustworthy, and experienced financial planner.

Can you retire free of money concerns? Yes.

However, it requires planning and a solid direction.

Your financial planner is your financial coach – they will make sure you stay on track with your financial goals and that you are financially, mentally, and emotionally ready for retirement.

Parkside InvestorPlus has guided clients into, and in, their retirement with the minimum of financial and emotional stress by putting in place practical and financially sound strategies.

Contact us or call us (02) 9899 4899.