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31 August 2006

Retirement living costs begin to bite

New figures released today by the Westpac-ASFA Retirement Living Standard show the largest annual increase in retirement cost of living, in both percentage and dollar terms, since the measure was first compiled in September 2003.

In the twelve months to June 2006 the cost of living in retirement as measured by the Westpac-ASFA Retirement Living Standard for a comfortable lifestyle for retired couples in Sydney has gone up by 3.8%, or over $1,700 a year. Other state capitals are also featured in the study.

The cost of a "comfortable" retirement lifestyle for a couple living in Sydney has risen from $877.86 a week ($45,774 a year) to $911.10 a week ($47,507 a year). In comparison, the cost of a "modest" retirement lifestyle for a single female living in Sydney rose 4% from $17,491 to $18,192 a year. Table 1 (attached) provides further details.

The Westpac-ASFA Retirement Living Standard benchmarks the annual budget needed by Australians to fund a comfortable standard of living in the post-work years. It is updated quarterly to reflect inflation, and provides detailed budgets of what singles and couples would need to spend to be able to have either:

• A modest lifestyle in retirement (better than the Age Pension, but still only able to afford fairly basic activities)
• A comfortable retirement lifestyle (enabling an older healthy retiree to have a broad range of leisure activities and a good standard of living).

The increase in costs experienced by both retiree couples and retiree single persons with a comfortable lifestyle - 3.8% - was the same as for Sydney residents on average. However, retiree couples and singles with only a modest lifestyle experienced an above- average increase in living cost - 4.0% for a single retiree and 4.3% for a couple.

The prices of basic living items went up more than "the fun stuff" - discretionary and leisure items. The more you have of the basic items in your budget the greater the cost impact.

Retirees have spending patterns that are somewhat different from other sections of the population. The fact that retirees with a comfortable lifestyle faced aggregate cost increases similar to the overall population was despite the differences in spending patterns.

Retirees barely spend anything on education, and also do not spend much on housing, with most having achieved home ownership. However, retirees spend a greater proportion of their income on items such as food and health services than the general population.

For instance, health services rose by a substantial 4.6%, with food costs up by a whopping 8.9%. Less consumption of bananas would help moderate this increase, but there were also substantial and less avoidable increases in the cost of cheese, bread, breakfast cereals, lamb, and vegetables.

Transportation prices were up 6.8%, largely due to the increase in petrol prices of 24.6% over the year.

Very modest increases in the cost of recreation goods and household contents and services helped moderate the overall increase in costs for retirees, and the cost of clothing and footwear actually fell over the year.

Individuals and couples living in other capital cities and regions have experienced similar increases in the cost of living in retirement, varying with each region.

Current costs for capital cities and certain major regions, can be accessed on the Retirement Living Standard calculator. This also provides summary figures for each State and Territory capital.

The full Westpac-ASFA Retirement Living Standard research report can be viewed on the ASFA website.

Table 1: Budgets for various households and living standards

[&nbsp]	Modest lifestyle single	Modest lifestyle couple	Comfortable lifestyle single	Comfortable lifestyle couple
Housing – ongoing only	$60.77	$62.85	$80.73	$82.81
Energy	$11.16	$13.30	$12.22	$14.35
Food	$63.80	$134.28	$126.56	$178.42
Clothing	$14.60	$25.18	$30.82	$56.21
Household goods and services	$48.27	$51.11	$85.77	$90.75
Health	$11.67	$22.00	$49.16	$96.68
Transport	$70.23	$71.01	$107.18	$107.96
Leisure	$44.27	$73.29	$141.62	$203.32
Personal care	$24.11	$37.99	$24.11	$37.99
Gifts and/or alcohol and tobacco	[&nbsp]	[&nbsp]	$21.30	$42.60
Total per week	$348.89	$491.01	$679.47	$911.10
Total per year	$18,192	$25,603	$35,430	$47,507

The figures in each case assume that the retiree(s) own their own home. The figures relate to expenditure by the household. This can be greater than household income after income tax where there is a drawdown on capital over the period of retirement.