How will your expenses change in retirement?

December 3rd 2019 | Categories: Retirement |

Planning your retirement income isn’t a straightforward task. It’s challenging to know exactly how much you’ll need to have available to you for the bare basics, and it is much harder to judge how much extra you’d like to have for travel or luxury items.

Part of this challenge comes down to the fact that your expenses are likely to shift in ways you might not predict after your retirement. In this article, we’ll take a look at how your household spending may change once you leave the workforce.

Talk to us to help you work out how to structure your finances to achieve your goals.

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Average household spending for pre-retirees and retirees

The Household Expenditure Survey (HES) from the Australian Bureau of Statistics sheds light on just how much average Australians’ household spending can change after retirement.

The survey shows households in which the reference person was aged between 55 and 64 had an average weekly expenditure of $1,459.57. Meanwhile, spending appears to decline gradually as we age. Those aged between 65 and 74 spend an average of $1,050.49 per week, while retirees 75 and overspend on $671.25 per week. This means Australians over 65 spend an average $887.62 each week, $571.95 below pre-retiree spending.

So, where are older Australians saving money? Survey results show the biggest decreases are in housing costs, food costs and transport. This may be due to more Australians in the older age range having paid off their mortgages, while food costs and transport may change due to downsizing lifestyles and not working any more.

Planning your own expenses for retirement

The Association of Superannuation Funds of Australia (ASFA) compiles and frequently updates what they call the “Retirement Standard”. This is an itemised and benchmarked budget outlining how much the average Australian would need to spend in retirement to achieve a comfortable or modest lifestyle.

A comfortable lifestyle is defined as one which enables a healthy retiree to partake in a broad range of leisure and recreational activities, as well as have a good standard of living through the purchase of higher quality goods, a reasonable and occasional domestic or international travel. Meanwhile, a modest lifestyle affords a retiree basic activities, somewhat above the standard of the Age Pension.

As of June 2019, ASFA estimates retirees will need $1,178.59 per week for a comfortable lifestyle, or $767.32 for a modest one. Compared to the HES, this suggests the average retiree today is able to afford a modest lifestyle, but just barely falls short of a comfortable one.

How will my expenses change?

When planning your own expenses for retirement, consider what kind of lifestyle you’d like to live. You may be satisfied with a minimalist way of life, or you might instead be looking forward to having the freedom to travel the world. You might want to move somewhere new and have a sea change or a tree change.

Using the itemised Retirement Standard, you can consider what’s most important to you in retirement and determine where you’re likely to spend less than ASFA estimates, or where you want to spend more. For example, ASFA estimates $27.41 per week for overseas vacations in a comfortable lifestyle. If you plan to have more than just the occasional overseas trip, however, you’ll need to have more than this available to you when you retire. Meanwhile, you might spend less than the Retirement Standard suggests on household goods and services if you’re spending a lot of time away from home. It is best to put together a budget to look at your likely spending.

Speak to a financial planner

How your spending changes in retirement depends largely on the way you plan to live. You may not have thought about what you’re best possible retirement looks like, and our advisers will help you do that. Finances are key to how you will spend your retirement years, so if you’re unsure of how to bring it all together, we suggest reaching out to us and getting in touch with a Financial Adviser. We have seen every-which-way when it comes to retirement, meaning there are limitless scenarios in terms of how you want to live your life.  At Invest Blue, we are passionate about clients realising their dreams and goals and living their best possible life.

We’ll sit down with you to discuss your goals, priorities, and aspirations, as well as your financial situation, and develop a clear picture of your retirement. From there, we’ll create strategies that will support your retirement and plan for how your finances will be managed into the future. We are here to support you to achieve your best possible lifestyle in retirement.

For more information on how we can help you plan for your retirement, get in touch with Invest Blue today.

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What you need to know

This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.