Retirement is often romanticised as a time where you can finally reap the rewards of your hard work and relax. 

However, recent data released by the Association of Superannuation Funds of Australia (ASFA)* and the Australian Bureau of Statistics (ABS) is starting to paint a challenging picture of what it will cost to retire comfortably. 

Based on the new ASFA Retirement Standard Report, the cost of retirement for those who own their home outright is now millions. 

Fixed income investments like bonds could be one solution to these soaring costs, and help you generate predictable income flows to fund your golden years. 

According to ASFA’s research, the estimated annual income needed for couples to live comfortably in retirement is $70,482, while singles require a minimum of $50,004. These figures consider various factors such as housing, food, healthcare, transportation, and leisure activities, but some are quite conservative in nature.

For example, ASFA estimates for a single retiree to live a comfortable lifestyle, food and groceries cost just $137.87 per week.

However, Finder research* from last year (February 2022 Consumer Sentiment Survey) saw household spend at $185 per week. Considering the 7% inflation in the 12 months to March 2023, this would now be $197.95 a week, a significant amount more than $137.87.

The ASFA Retirement Costs Report also estimates that $35.91 each week is enough to cover building and contents insurance. However, the Climate Council Report Uninsurable Nation: Climate a change and the costs of inaction* suggests that by 2030, one out of every 25 homes and commercial buildings in Australia will have premiums too expensive to afford.

Rising costs and longer lives are just two reasons why $1 trillion is expected to flow back into fixed income investments over the next few years.

Lower-risk fixed income assets give investors a certain level of confidence in their return. This means you can predict your cashflow and budget better as prices continue to rise.

The rising cost of living coupled with longer life expectancies have skyrocketed the cost of retirement in Australia into million-dollar territory.

ABS data around life expectancy has revealed that the average lifespan of Australians is increasing, and in 2019-21, was 81.3 for males and 85.4 for females.

This is a staggering jump from 1991, when life expectancy at birth was 74.4 years for males and 80.3 years for females, and is pushing retirement costs up into the millions, to cover 20 to 25 years, or more.

For singles who retire at 60 and live to 85, retirement could cost a whopping $1,250,100. For couples, the cost amounts to almost $2 million.

What's more, the ASFA report doesn’t account for any weekly rent or mortgage payments, which can be a considerable burden for retirees, especially as interest rates rise to fight inflation.

Let's consider a weekly rental or mortgage payment of $500. Over 25 years, this accumulates to an additional $650,000 in expenses. Even if you were to pay only $300 a week in rent, this equates to $390,000, which is nothing to sneeze at. 

Given the challenges associated with affording retirement, it is crucial for individuals to proactively plan and invest in their future.

To help you fund the soaring costs of retirement, the Australian Bond Exchange has put together a free webinar on investing in bonds and fixed income for National Seniors members.