Cost-of-living increase eases for some retirees
It costs more to retire comfortably, but the pressures of rising prices don’t affect everyone equally.
The cost of funding a comfortable retirement increased by 3.3% over the last 12 months, due to higher costs, including medical expenses and insurance premiums.
In the March quarter, the Association of Superannuation Funds of Australia (ASFA) measure of how much people need to live a comfortable retirement (the ASFA Comfortable Retirement Standard) rose 0.7% to a record high of $72,663 per year for couples, and $51,630 per year for singles.
The pace of price rises has eased in two key spending categories: food and fuel.
Since 2004, the ASFA Retirement Standard includes the cost of everyday expenses such as health, communication, clothing, and household goods. It reflects community expectations as well as changing lifestyle expectations and spending habits.
The standard also assumes that retirees own their own home, so it is not impacted by surging housing costs.
- Medical and hospital services rose 2.3% in the quarter, higher than the 1.2% in the December quarter.
- Insurance prices rose 3.7% from the December quarter and 16.4% annually, which is the strongest annual rise since 2001. Higher reinsurance, natural disasters, and claims costs continue to drive higher premiums for house, home contents, and motor vehicle insurance.
- Annual food costs rose by 3%, down from the 4.5% in the December quarter. Bread and cereal prices rose by 7.3% over the year, with prices for dairy products rising by 4.1% over the year. Over the quarter, the price of fruit and vegetables was up 2.5% offset to an extent by a 0.7% fall in meat and seafood.
- Automotive fuel prices on average fell by 1.0% in the March quarter, with an average unleaded petrol price for the quarter of $1.94 a litre.
- Electricity prices rose moderately at 2.0% over the year. The introduction of the Energy Bill Relief Fund rebates from July 2023 has driven down and moderated increases for eligible households. Many self-funded retirees have not been eligible for these past rebates but will qualify for the rebates to be paid in forthcoming quarters that were announced in the budget. Excluding the Energy Bill Relief Fund rebates, prices increased by 17.0% over this period.
- Domestic travel and accommodation rose 1.3% over the quarter. Holidaying domestically has remained popular, and prices remained elevated for domestic accommodation and airfares.
According to the ASFA, the superannuation lump sum required to pay for a comfortable retirement, assuming it is used in conjunction with a part pension, is now $690,000 for a couple and $595,000 for a single.
The ASFA has compiled recommended budgets for retirees, which can be found here.
Some retirees are doing OK despite the cost-of-living pressures – usually those who have a variety of income streams and are willing to monitor and adjust their spending priorities.
They have benefited from some positive financial factors, including higher returns on their bank deposits, rising home values and share prices, age pension rises linked to inflation, and good news in the recent federal budget.
The ASFA’s findings coincide with CommBank iQ research that found people aged over 60 were increasing their discretionary spending, which was up 11% on travel, 9% on general retail, and 7% on eating out.
MBA Financial Strategists director Darren James told The Australian many retirees were “in a unique situation at the moment”.
"Recent interest rate increases did not impact most retirees because their mortgages were largely repaid. But on the other side, most retirees tend to have savings across term deposits, and at the moment they are getting higher interest rates than they have had in a long time,” he said.
Retirees also benefited from the recent federal budget keeping pension deeming rates at their current low level, where pension income tests deem the first $60,400 of a person’s financial assets to earn just 0.25 per cent, and assets above that are deemed to earn just 2.25 per cent – well below typical investment returns.
The budget’s $300 energy relief payments to all households were welcome news for all retirees, not just those receiving the age pension.
ASFA says last year’s energy bill rebates meant energy prices rose 2% annually rather than the 17% they would have increased without the government assistance. It says many self-funded retirees were not eligible for those 2023 rebates.
Related reading: ASFA, The Australian
