Knowing retirement costs is essential for planning your retirement. In Australia, a couple needs over $60K per year for a comfortable lifestyle. Can you afford to cover the costs for more than 20 years?
In this post, I will explain the key elements of the retirement costs of living. You can either watch the video below or continue to read this article if you prefer reading. They both contain the same information.
Retirement Costs of Living in Australia
The Association of Superannuation Funds of Australia (ASFA) estimates the cost of living in retirement in their Retirement Standard reports. They represent the results in four categories; modest and comfortable lifestyle for both singles and couples.
These reports are updated quarterly and widely used in the industry, including multiple organisations of the Australian government.
According to the most recent report published in December 2018, a couple aged around 65 needs a budget of A$60,977 per year, in order to support a comfortable lifestyle. You can find the other budgets in the table below.
As you can see, there are big differences between modest and comfortable lifestyles. What are those lifestyles exactly? Before diving into the detail of retirement costs, let’s first understand the types of lifestyle defined in the report.
Comfortable VS Modest Lifestyles
Let me explain the lifestyles by giving you practical examples of living. I extracted those examples from the ASFA report, but described them differently.
Examples of the comfortable lifestyle
- Your house may start having some issues in retirement. You will then renovate the kitchen and/or the bathrooms.
- Likewise, you will replace the appliances like dishwasher and washing machine as they get older and having major problems.
- You will keep going to the same hairdresser as the one before retirement.
- You would not mind turning on the AC when feeling hot.
- You will sometimes dine out at restaurants. A couple of wines together, of course.
- No problem for watching Netflix, as you will have an unlimited data plan of the Internet.
- You would take multiple domestic trips in a year. You may also travel overseas, perhaps once in several years.
- You will drive a middle-class car, something like Toyota Corolla or non-luxury SUV.
- Top-level private health care is a must for you.
Obviously, these are not luxury living but certainly comfortable living. Average Australians would be happy to have such a lifestyle after retirement.
Examples of the modest lifestyle
- For the housing issues, you may not have enough money to renovate the kitchen or the bathrooms. You will still be able to cover the repairs though.
- You will be limited in replacing appliances and holding household items.
- You will look for cheaper haircuts than those before retirement.
- You will keep a close eye on the utility costs, and try to reduce the costs if one bill goes beyond its average.
- When you don’t feel cooking, you may pick up some take-out meals. Occasionally, you would dine out at budget restaurants.
- You will have an affordable plan for communications that may limit calls, text, and Internet data.
- You may take only one holiday in Australia. Going overseas may be over the budget.
- You will hold a basic private health insurance with limited gap payments.
- You will drive a basic car, something like Hyundai i20 or Mazda 2.
With this lifestyle, you may feel tight. As a result, you will keep an eye on the expenses every month. Nevertheless, the modest lifestyle isn’t too bad for the average class of Australians.
Why Do We Need Over $60K Per Year?
Getting back to the ASFA report, a couple would need A$60,977 per year and A$43,317 for a single person to have a comfortable lifestyle. These numbers assume that you own your house. Without mortgage repayments, spending $60K a year is not low at all for most of the Australians.
Why do you need that much? Here are the breakdowns of the key retirement expenses:
- Housing: insurance, rates, water, home repairs, home improvements, utilities
- Communication: bundle (calls, text, mobile data, broadband)
- Health: insurance prescriptions, over-the-counter supplements, co-payments/out-of-pocket
- Food: groceries and other fresh food
- Recreation: TV, movies, streaming service, social activities, travel, food, etc
You may be still wondering why these expenses roll up to over $60K/year. Let’s look into the detail of the expense breakdowns in the following sections.
Key Retirement Costs – Housing
The housing expenses include building and contents insurance, council rates, water charges, home improvements, and home repairs and maintenance. The table below shows the budgets for housing, along with the lifestyles.
Key Retirement Costs – Utilities
The utility expense breakdown below covers electricity and gas. These numbers for a quarter are $767 for a couple living comfortably and $660 for single living modestly.
Do you remember your last water bill? Well, this budget allows for A$321 per quarter. Does this match your numbers? How about your Rates? For the comfortable lifestyle, the rates are $1,997 per year and $1,823 for the modest lifestyle.
Key Retirement Costs – Health Services
One of the biggest concerns retirees have is about the costs for health services in retirement. The ASFA’s report is absolutely valuable information, as those health costs are not straightforward to estimate in general.
The budgets shown in the table below include health insurance, chemist, co-payment and out of pocket, vitamins and other over the counter medicines.
Well the biggest expense in the Total Health category for a couple living comfortably will be the health insurance which comes to $4,210 per year. For a modest living couple, the health insurance cost would be $1,609.
Key Retirement Costs – Food
The figures in the table below include groceries and other fresh food.
Key Retirement Costs – Leisure
The expenses include domestic vacations, overseas vacations, take away food and snacks, cinema, plays, sport and day trips, lunches, dinners out, alcohol, streaming services (eg, Netflix), TV, DVD, and membership clubs.
The budget considers one international trip in 7 years. The domestic trips in the budget cost $3,686 per year.
Can You Afford To Cover Them?
The retirement budgets in the ASFA report are well estimated. They reflect the common lifestyles in Australia and capture most of the key costs in retirement.
The problem is that the estimated costs are high for most of the average Australians. Do you have enough money to spend $60K+ every year for more than 20 years of retirement? Those costs sum up to more than $1.5 million if you include inflation. You may not be able to save enough before retirement, in order to have such a comfortable lifestyle after retirement.
To fill the gap between the saving before retirement and the costs of living after retirement, you should increase your retirement income and cut the retirement costs at the same time. Doing both is hard work and challenging, but that is the cost of having a comfortable life in retirement.
To assist you, we offer practical information for making extra retirement income. These are free videos and articles. I recommend you to learn from those tips and secrets, and apply them for your current life.