Income & Spending In Retirement

New research on Australian retirees has revealed that the expenditure of most retirees is modest, regardless of the level of income they have access to.

The collective dream of retiring and touring the world may not be entirely accurate according to new research, which was commissioned by AIST and conducted by Monash Business School’s Australian Centre of Financial Studies (ACFS). The research, which is based on 12 years of data from the Household, Income and Labour Dynamics (HILDA) survey of about 8,000 households, found that most households in particular regions tend to spend a similar amount in retirement, irrespective of differences in income.

AIST CEO Tom Garcia said the research challenged perceptions of retiree expenditure and was timely given the current discussion around the fairness of the super tax concessions, super’s objective and what is considered to be an ‘adequate’ income in retirement.

“Learning more about what retirees actually spend compared to their income will help us make evidence-based decisions about adequacy and super policy,” Mr Garcia said. “There are a lot of myths and fear about what retirees need to live on. This study suggests that most older households, including wealthy ones, have relatively modest expenditure and – on average – have the highest financial satisfaction.”

Interestingly , the research found that approximately 80 per cent of retired households in the survey report expenditure levels that, are at or below the ASFA ’modest’ standard. This is the level of expenditure considered to be the most basic standard of living for retirees.

Retiree expenditure

ASFA Retirement Standard – budgets for various households and living standards for those aged around 65 (June quarter 2016, national)

   Modest lifestyle  Comfortable lifestyle
Single Couple Single Couple
Total per year $23,767 $34,216 $43,062 $59,160

 

ASFA Retirement Standard – budgets for various households and living standards for those aged around 85 (June quarter 2016, national)

   Modest lifestyle  Comfortable lifestyle
Single Couple Single Couple
Total per year $23,332 $34,598 $38,822 $54,460

The figures in each case assume that the retiree(s) own their own home and 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. Single calculations are based on female figures.

Pre-retirees Concerned

Nevertheless it seems that pre-retirees are concerned about funding retirement, with ME’s Household Financial Comfort Report 2016 finding that Baby Boomer’s financial comfort levels have fallen in the first half of 2016, with Baby Boomers reporting greater worries with the ‘cost of necessities’ and the ‘ability to maintain lifestyle in retirement’ as well as the ‘level of government assistance available’ and ‘impact of legislative change on their financial situation’.

Accounts Based Pensions Rising

Fittingly, given modest retirement spending habits, it seems that account-based pensions are becoming increasingly popular with retirees. In August the Australian Bureau of Statistics (ABS) released its Superannuation in Australia, 2003-04 to 2013-14 report, finding that an increasing number (approximately one-quarter) of retirees/workers eligible to take an income stream are doing so. Account based pensions were the most common type of superannuation income received in 2013–14, followed by guaranteed pensions (70% and 21%, respectively).

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