Super sector says you need more to retire than last year
The cost of retiring has jumped 7.5% in 12 months. Here’s how much you may need.
The cost of a comfortable retirement is further out of reach thanks to inflation-driven price pressures. A couple now needs an extra $50,000 in retirement to afford it.
That’s according to the latest research by the Association of Superannuation Funds of Australia (ASFA).
Specifically, increases in the price of food, fuel, travel and electricity are to blame – pushing up the cost of retiring comfortably to $69,691 a year for a couple aged around 65, while a single needs $49,462, the ASFA says.
Pensions and other government payments increased by 3.7% from 20 March, as part of the twice-yearly indexation to inflation and other data.
To put things in perspective, the ASFA says over the five quarters from September 2021 to December 2022, the Consumer Price Index (CPI), the key measure of inflation, has increased by an average of 1.8% per quarter, which is far higher than the historical average of 0.6 per cent per quarter.
Also, falling real wages have meant that the Age Pension payments have not benefitted from adjustments linked to wage increases.
The AFSA estimate is based on retiring at age 67 and funding a modest or comfortable retirement to the age of 92.
The ASFA calculates the lump sum needed for a comfortable single retirement has increased about 9 per cent from $545,000 to $595,000, and about 7.8 per cent for a comfortable couple retirement from $640,000 to $690,000. The details of the lump sum adjustment are explained here.
Cost of living increases
ASFA chief executive Martin Fahy said retirees usually spent a greater proportion of their income on staples, and these costs have climbed the sharpest.
Some of the largest annual price increases were:
Food rose by 9.2%
Bread 13.4%
Meat and seafood 8.2%
Milk 17.9%
Oils and fats 20.8%
Gas 17.4%
Electricity 11.7%
Automotive fuel 13.2%
Domestic travel and accommodation 19.8%
International travel and accommodation 15.9%
View the detailed budget breakdowns here.
The ASFA observes that while inflation is especially hitting the currently retired, the legislated 12% SG (Superannuation Guarantee) should support most people building adequate superannuation savings across their working lives.
Financial strategist Theo Marinis told The Australian that everybody was noticing rising living costs “and certainly retirees are feeling the pressure” but that it comes down to the standard of living desired now and planned for.
“Inflation makes life more expensive – it can make people feel that they will never be able to retire,” he said. “It comes down to your standard of living.”
Wealth writer, Anthony Keane reported that accumulating almost $600,000 super may seem impossible for many Australians nearing retirement, with the median super balance for 60-64 year olds sitting at $181,000 for men and $139,000 for women. Average super balances are $358,000 and $288,000 respectively.
Mr Marinis said pre-retirees should not lose heart, as many were used to more basic lifestyles based on their wage income, while others were now benefiting from higher interest on their bank deposits.
“Don’t get caught up by averages,” he said. “It’s good to have aspirations to get to that level, but you shouldn’t feel dejected if you don’t.”
Related reading: ASFA, The Australian
