cost of living, retirement, retirement spending, retirement income, retirement affordability index, Matt Grudnoff

The real cost of living in retirement

Can it be measured?

There is a lot of noise about the cost of living right now. So much so that, even if you are reasonably well off in retirement, you may be starting to question whether your sums are right.

Suffering from financial anxiety can be extremely debilitating. For this reason we’ve decided to examine two different indexes which suggest target expenditures for retirees. There are certainly more than two available, but both of these can be accessed for free and are well-established. We’ll also look at how representative they are when it comes to ‘the real world’ with commentary on these indices from Matt Grudnoff,  Senior Economist at The Australia Institute. 

The very nature of a retirement spending index means that there will be inherent assumptions and generalisations. This is difficult to fully avoid but does need to be considered if you are using them as a benchmark for your own money management.

How might the following comparisons help you? 

They offer two very different takes on what you might need, by category, against which you can assess your own outgoings. Benchmarking is a really useful exercise when it comes to household purchases or expenditure. If a homeowner, you probably enjoy updates on how your house price ranks compared to the median in your suburb. And when planning how long your money will last, benchmarking forces you to confirm how much you are currently spending, alongside the effect this will ultimately have on your savings.

Let’s start with the regularly updated Retirement Living Standard, published by the Association of Super Funds of Australia (ASFA), the peak advocacy and research body for the Australian superannuation industry. You will note this index offers target expenditure for those aged 65-84 and those aged 85 and over.

ASFA Retirement Living Standard

YourLifeChoices Retirement Affordability Index

Next, here are slightly different target indices from the YourLifeChoices – the Australia Institute Retirement Affordability Index.

But first, a declaration of interest from the author of this article. The Retirement Affordability Index was the joint creation of Matt Grudnoff and me (then publisher of YourLifeChoices website) as a way of offering what we believed to be the most relevant spending statistics available for those planning or entering retirement. The data was prepared by Matt, using, as a base, a special data request from the Household Expenditure Survey (HES). supplied by the Australian Bureau of Statistics (ABS). The reporting of actual retiree household spending was then segmented into six retirement ‘tribes’ as denoted in the table below. As with ASFA’s Retirement Living Standard, the Retirement Affordability Index is updated by each quarter’s CPI in order to keep the results as current as possible.

Couple homeowners with private incomeCouple homeowners on Age PensionCouples who rent on age pensionSingle homeowner with private incomeSingle  homeowner on Age PensionSingle who rents on age pension
Total weekly expenditure$1,676.93$968.6$819.62$957.55$536$516.9
Total monthly expenditure$7,266.71$4,197.26$3,551.68$4,149.40$2,322.65$2,239.90
Total annual expenditure$87,200.53$50,367.13$42,620.19$49,792.83$27,871.81$26,878.84

Source: Your LifeChoices and the Australia Institute

There are two main differences between the methodology used by ASFA and in the RAI. ASFA amounts are based upon a ‘basket’ of goods, with a distinction between a ‘comfortable’ retirement and a ‘modest one’, for two different age groups as noted above. It also assumes that the retirees will all fully own their own home. 

For further context, here is a reminder of the current full Age Pension payments:

Full Age Pension payments as increased 20 March 2023

Relationship statusAmount (per fortnight)Annual amount
Couple (each)$802$20,909
Couple (combined)$1604$41,818
Couple (separated by illness)$2128$55,480

Retirement Essentials has More information on this.

As there is a clear and significant difference between both the method and the suggested spending targets in these two tables, we asked Matt for his views on why the inclusion of renters was so important. 

‘I believe that the ASFA benchmarks are an encouragement for Australians to pump more money into super. The totals needed to sustain the ‘comfortable’ lifestyle for couples is more than a million dollars. That means you are incredibly wealthy. Most people won’t have this and so they can’t afford ‘comfortable’. If everyone chases this target, we will all feel a lot worse off. The vast majority won’t need it. they won’t have it either.

‘The second issue the assumption that you own your own home outright. There is a significant number of people now entering retirement with sizable mortgage debt and many are renting. If you are renting or paying down a mortgage, you will need much more than the ASFA Retirement Living Standard suggests.

‘The thinking behind the development of the Retirement Affordability Index was to look at actual spending by specific types of retirement households (couple or single homeowners or renters, on an Age Pension or private income). So we could more easily separate that top ten percentile and their likely expenditure (very comfortable) from the vast majority who are living much more modestly.

In basic terms, people who retire are far from an homogenous blob. Those who retire in a fully paid-off home and live off their super are able to spend much more than other cohorts. And because the index is based on statistics supplied by the ABS of what retirees say they spend, it reduces any high expenditure by other households, in categories such as childcare, education and commuting expenses. 

The most obvious cost of living pain is currently being felt by those on a full Age Pension who rent. Between what they receive in pension payments and their outgoings, there is literally no leeway. This has been exacerbated over time by the freezing of bulk billing payments for doctors. It’s now almost impossible to find a doctor who does this. So protection from Medicare is greatly reduced.

Are there any solutions for such retirees?

‘There are a few things. Firstly, those who do own a home might think about accessing the Home Equity Access Scheme if they are facing an ongoing shortfall. Local charities and foodbanks are useful for those who simply can’t pay for groceries. Of course it is extremely tough for those without a home, rental or otherwise, when they are forced to stay with friends or consider other options.

If you are on an Age Pension you can ask for financial assistance. This may involve bringing froward future pension payments, which, of course, may constrain future spending.

Are retirees currently more vulnerable than other groups when it comes to rising prices?

‘Because most retirees are on at least a part-Age Pension, the fact that it is indexed by either consumer price increases or wages, if increases are higher, there is a level of protection not experienced by many lower paid workers,’ says Matt. 

‘But this is actually a two-part question. In absolute terms, yes, many retirees are extremely vulnerable when it comes to increasing prices. In relative terms, they may actually be keeping pace with inflation better than some wage earners. The median salary is about $64,000. Half of all workers are earning less than that. Which gives us a very relevant benchmark for the rest of the population.’

Where do you sit?

The obvious question underlying any retirement spending indices is,  how much is enough for you? 

If you are happily spending more than either of these benchmarks, and feel you can cover your outgoings, for the rest of your retirement, then you are fine.

If you can’t cover your outgoings, then using the above links to check the category by category benchmarks will help you see if you are way over – maybe in entertainment or energy. Knowing this detail may help you see ways to cut back, or compare, or strike a better deal. As always, your enhanced knowledge give you more power.

We can only ever start from where we are. But here is some extra support that may help if you are concerned about covering your household expenses:

Maximising your entitlements is a great way to ease the squeeze. Working with an adviser you will be able to use all the Centrelink rules to your advantage.
Using the Retirement Essentials Retirement Forecaster will also show you if your rate of spending is a little steep for your savings – and you can play with the levers to reach a ‘sweet spot’ where you can sleep better at night.