This article will give you a more in-depth look at retirement and what it might cost you to live comfortably once you do.
Common Costs of Retirement
These are some of the costs that people might not take into account when they retire.
The first and most important is the cost of healthcare. According to the Australian Institute of Health and Welfare (AIHW), only 8% of adults eat enough vegetables, and over 63% of us are overweight or obese. These poor health habits combined with the added health risks that come with aging mean that retirees will need to be on high alert for many medical issues that may arise. You have to expect medical costs, and factor them into your budgeting for a comfortable retirement. Such medical costs include prescription medications, trips to the doctor or even trips to the hospital.
2. Loss of spouse
The loss of a spouse can be a huge cost, financially as well as emotionally. A loved one passing away can unfortunately create a large financial burden for you, unless you have adequate life insurance and have been planning ahead.
Ensure that your estate planning, including powers of attorney, healthcare directives and your will, are always up-to-date. Find out how to write a will here.
3. Investment losses and scams
With a lifetime of savings to invest, some retirees might put their money into the share market at a bad time and incur significant losses. Be smart about how you invest and seek out professional advice. Also, unfortunately retirees can be prime targets for investment scammers looking to take advantage of those without financial expertise. It is important to always conduct extensive research when making a serious investment decision.
4. Travel expenses
Travel is another major cost. Retiring means you have a lot of extra time to travel, but it can be very expensive. Travelling is one of the easiest retirement costs to underestimate, as it is very easy to overspend on holidays. Therefore your travel ambitions should always be considered (and costed) before retirement.
5. Home maintenance
The cost of maintaining the family home can get more expensive as you become less able bodied. You may no longer be able to do your housework/gardening/repairs yourself and may have to pay for help. It’s another reason why selling your house once retired might be a good idea; you might not need all the extra room anymore or the value could have increased. Selling your house and moving into a cheaper one can also grant you extra funds to make your retirement a little more comfortable. That said, recent research has found that many older Australians want to stay in their own family home throughout their later years.
Typical costs of retirement
According to the ASFA retirement standard, there are two types of lifestyles you can hope to have once you retire; modest and comfortable retirement.
Modest retirement is considered to be better than the age pension, but you can only afford basic activities and very limited luxuries. This means no fancy cars or yachts!
A comfortable lifestyle is defined by the ASFA as enabling a retiree to be involved in a broad range of leisure and recreational activities as well as having a good standard of living throughout retirement.
The ASFA sets a minimum budget you would need to attain such a lifestyle. These budgets can be found in more detail on the ASFA website. At time of writing, they are as follows:
|Modest lifestyle||Comfortable lifestyle|
|Total per year||$23,695||$34,090||$42,962||$58,915|
This is of course the minimum recommended amount you would need per year. Having more than this amount would ensure you make the most out of your retirement.
According to the ABS, one in five Australians intend to retire from the labour force at 70 years and over. The average intended age of retirement among Australians is 63.4 years.
In 2013, of the estimated 8.5 million people aged 45 or over whom at some point had worked for two weeks or more, 39% of them (3.3 million) had retired from the labour force.
During this time period, just 5% of people aged between 45-49 were retired, compared to 16% of 55-59 year olds, 63% of 65-69 year olds and 84% of those aged 70 years and up.
For men, 25% retired before the age of 55, 50% retired between the ages of 55-64, and the remaining 25% retired after reaching 65.
For women, 55% retired before 55, 36% retired between 55-64, and just 9% retired after the age of 65.
The average intended age, as mentioned earlier, is 63.4 years, yet the actual average retirement age was 61.5 years, indicating that people are retiring sooner than expected. This could potentially be a problem, considering that there is still roughly 25 years of life to get through without a regular income.
What we do in retirement
Once you retire, you enjoy significantly more free time than the rest of the working population. People aged 65-74 spend 6.78 hours of a typical weekday engaged in leisure activities. According to U.S News Money, The most common leisure activities of retirees are:
- Watching TV – retirees spend over half their leisure time watching TV, with people aged 65-74 watching 3.9 hours a day. This is over an hour more than the rest of the population.
- Reading – People tend to become more thoughtful and reflective with age. Seniors who are older than 75 spend more than an hour a day reading.
- House and garden projects – these projects are common retirement hobbies. Seniors aged 65 to 74 spend 2.45 hours per day on activities such as gardening, pet care, car maintenance and housework.
- Volunteering – Retirees participate in volunteer activities such as teaching for more than half an hour each day, compared with a third of an hour for all other adults.
- Finding work – many seniors choose to find part time work after retirement to keep the pay checks coming as well as creating a sense of belonging and contribution. Working after retirement is also a benefit to your health, and it allows you to pursue an entirely new field of work.
- Hobbies – it is extremely important for seniors to find hobbies to keep them busy and interacting with other people. Seniors without regular hobbies have a higher chance of becoming depressed.
- Travel – Many people dream of travelling the world once they retire, but it can be very expensive.
- Spending time with their families – both their children and often their grandchildren.