As you approach retirement, one of the challenges is to work out your likely spending habits once you stop work for good.
To make your job easier, we have reviewed some industry reports to see how much retirees are spending. This can be a springboard to help you assess what your own needs and preferences might be.
The Standard uses common terms to present three broad categories: a comfortable retirement, a modest retirement and one based solely on the Age Pension.
The ASFA budget estimates for retirees aged over 85 are slightly less but not hugely different. The main differences are:
- More money needed for health, in-home cleaning andcare servicesas people become more frail
- Less money for transport and leisure, as older retirees are less likely to own a car, are less mobile and less inclined to join out-of-home activities.
|Budget / lifestyle for couples||Aged 65||Aged 85|
|Budget / lifestyle for singles||Aged 65||Aged 85|
Sources: Centrelink, ASFA
Note: Age Pension rates as at March 2022. Couples rate based on living together. Modest and Comfortable lifestyles as at December 2021 quarter.
Don’t rely solely on projections
On the face of it, the figures suggest there is not much difference between a modest lifestyle and one based on the Age Pension. There is only around a 9% difference between the two budgets for couples, and 14% for singles. It’s worth noting that the ASFA budgets assume that retirees own their own home outright and are relatively healthy. Age pensioners who rent privately will struggle financially. Even a few extra dollars a week from superannuation or a part-time job can make a big difference to the lifestyle of low-income earners.
However, the Age Pension does come with supplements and rent assistance (if you are renting) for eligible retirees, albeit smallish amounts, which may further cloud any projections or assumptions.
While the ASFA budgets provide food for thought, it’s best not to take them as the final word. Budget projections can be highly variable and dependent on individual preferences. Home improvement, repairs and maintenance are a big topic in their own right, often discretionary rather than fixed, and don’t fit neatly into weekly or monthly expense scenarios.
The issue with all categories is that we all have our own views on what would be a modest or comfortable retirement.
Some are content to live a simple life and have no desire for luxuries or even regular social outings, such as restaurants or live entertainment. Others may reach retirement after having spent years raising kids and working and want to ‘splash out’ on travel and an active social life.
Perhaps a more useful guide to retirement spending is your spending patterns and lifestyle preference pre-retirement. A common rule of thumb is thatyou will need 66–80% of your pre-retirement income to enjoy your current standard of living into retirement.
What areas will most impact my cost of living in retirement?
The big question then is: What type of retirement do you want and what might that cost? Should I track spending or just do a budget?
We will assume you are in reasonable health and don’t need to provide funds for major surgeries or treatments caused by trauma or disease, although that can become an issue at any time, particularly for the very elderly.
Below we cover some major areas that could impact most on your spending.
1. Owning a home
The Centre of Excellence in Population Ageing Research (CEPAR) found that owning your home mortgage-free, instead of renting, is a significant factor in your ability to live a modest lifestyle, or better, in retirement.
Around 75% of Australian retirees own their own home, but for the remaining 25% the outlook is not so great. CEPAR senior research fellow Rafal Chomik says while most Australians will enjoy their modest retirement lifestyle, the living standards of those who rent in retirement are very different; only around 15% of older renters can afford a lifestyle better than modest. Single renters are particularly at risk of living below a modest retirement.
Among all older people only about 10% fall below the poverty line set at half the median income. Among older Australians who rent, 40% fall below. Among older Australians who rent and live alone, it’s more than 60%.
What’s more, the rate of home ownership is falling. According to thelatest government figures, homeownership among pre-retirees aged 50–54 has dropped 6.6% in the past 20 years from 80% to 74% and more Australians are retiring with mortgage debt.
Learn more in SuperGuide article Your home: The foundation of retirement planning.
2. Where you live
In some cities and regions in Australia, prices for common items such as petrol and food exceed the national average, not to mention other discretionary or leisure products. Research by HILDA from a few years ago found that the biggest difference in the level of spending was between households in Sydney where retiree spending was $44,672 on average compared to households in regional South Australia where household spending was $22,017 – less than half! Melbourne retirees were spending $34,000 and Tasmanians $25,000.
Not everyone wants a sea or tree change but moving can be attractive if there are amenities and services that fit your needs, whether they be health-related or reduce your overall weekly or monthly spend. Retirement villages can offer a pleasant lifestyle but look closely at their fees and charges to see if this arrangement suits you. Vertical retirement villages, or high-rise living, is a new trend for retirees who want to stay in the bustle of a city close to services and transport.
Learn more in SuperGuide article Location the missing ingredient in retirement planning.
3. Your age and lifestyle
Decide what activities and services are important to your overall happiness. Can you cut back on subscriptions, alcohol, restaurants and holidays, for example? A 2018 report from Challenger referencing the HILDA demographic survey reaffirmed that younger retirees generally spend more than older retirees. During the so-called active phase of retirement, more is spent on wants rather than needs; in the ‘passive’ phase of retirement, after age 75, more money is kept for essentials like healthcare.
This is consistent with the Milliman Retirement Expectations and Spending Profiles study that shows a falling retirement spend in Australia is driven by behaviour, not income. This fall-off in spending may partially be a case of insuring against longevity risk (the risk that retirees run out of savings before they die), to leave a bequest to children, or for other reasons that are not clear.
The Milliman research, which tracked the spending of more than 300,000 older Australians, showed the average proportion of income spent on housing, food, energy, leisure, goods and services, travel and insurance either declines slightly or remains the same, regardless of income levels, through retirement. Only healthcare spending increases.
4. Couple or single – differences in spending
Areport by the Australian Centre for Financial Studiesdelves deeper into the HILDA survey and provides a comprehensive overview of spending patterns. It found that single retirees were of greater risk of financial hardship, with spending actually exceeding income for those with the lowest 20% of income.
Retiree couples aged 65–74 spent just $33,200 a year on average, well below ASFA’s modest retirement budget of $40,739 and the Age Pension, currently $37,331. While single households of the same age spent an average of only $18,400, also well below the rate of the ASFA modest retirement budget ($28,179) and the Age Pension ($24,554).
5. How long will you live?
SuperGuidehas a suite ofarticles on life expectancy that show the most recent government figures (2016–2018) reporting life expectancy for a newborn male at 80.7 years and for a newborn female 84.9 years. If you have safely made it to retirement, you can expect to live even longer. Today’s 65-year-old men can expect to live to 84.9 while their female counterparts can expect to live to 87.6.
Many of us probably know people in their 80s who are in reasonable health. However, chronic disease is on the rise and it’s not uncommon for retirees to have non-life-threatening ailments and conditions that can put a dent in the pocket, requiring regular medications and trips to the doctor.
The vitamins, minerals and supplements industry has also grown exponentially in the past decade. Before spending your hard-earned on a swag of pills, powders and liquid, find out if you can get this nutrition naturally through an improved diet. Pathology or blood tests may indicate you have a deficiency in certain vitamins or minerals, in which case purchasing these may be warranted. Always seek your doctor’s advice.
6. Estate planning – leaving money once you are gone
Research shows many retirees do not spend big (particularly in later years). Some may worry about preserving capital so their money doesn’t run out, some may be keeping money aside in case they need aged care late in life, but it’s also possible that some have estate planning in mind. This means leaving behind the family home and other assets (such as super) to children and other dependants. Super does not automatically form part of your estate, so always seek legal and financial planning advice.Estate planning can be complex from a tax, legal and financial perspective.
Work out how much you would like to leave behind to your spouse or children. You will need to be clear as to who your beneficiaries are and how any proceeds are to be distributed.
Track all your areas of spending
Have you promised your adult children you will stump up some cash to help them with a home deposit? Do you regularly donate to charities or have subscriptions you have forgotten about that appear in your online bank profile every month? These are just some of the areas that can be overlooked when you do your retirement budget plan and the costs can mount up.
To keep track of these and other items, perhaps do an audit every year, including things that may need regular updating such as clothes or club memberships. Other expenses may include the annual cost of having credit cards, loyalty scheme annual charges and so on.
Creating an expenses budget is relatively simple and there are templates available online. Perhaps prepare a monthly budget of all your fixed costs as an average, such as utilities, rates, internet, phone, transport, food and household items and insurances. Bills are often set monthly rather than weekly, so monthly may be the easier option.
Next work out how much money you are willing or able to spend on discretionary or luxury items, such as holidays, restaurants, subscriptions, extra household items, renovations and repairs, wedding or birthday presents and so on.
Also look at your debit and credit arrangements and adjust them so you can easily track spending on your statements.
Finally, there’s no shame in getting quotes to compare prices, finding bargains or switching to lower-cost generic brand products, all of which may save thousands of dollars each year. And don’t forget to check the many government and other concessions and discounts available to retirees.
SuperGuide has a round-up of retiree concessions available in your state or territory.
Checklist to managing your spending
- Set your goals for the standard of living you want in retirement and discuss with your spouse or partner.
- Track expenses using a monthly budget or another means.
- Find cheaper alternatives across the spectrum, whether it be generic food products or lower-cost, environmentally-sound home renovations.
- Delay purchases if cheaper versions of a product or service will be released at a later point and look at how innovative credit and debit arrangements can help.
- Spend wisely on discretionary or luxury items if their cost is beyond your budget.
- Seek multiple quotes for professional services, whether they be advisers, tradies or medical specialists, and ensure they hold the relevant qualifications and licences.
- Consider how much money or assets you want to leave behind to your spouse, children or dependants.
How much super will I need to boost my retirement income?
Once you have a better idea of what your retirement cost of living could be, the next step is to work out how much super you will need to finance that lifestyle.
Your independent expert to help you plan your retirement
Including how much super you need, how long you are likely to live for, whether you could be eligible for the Age Pension, the implications of retiring at different ages, how to prepare for retirement and much more.
Plus super and pension fund performance rankings, the latest super changes, tips and strategies, checklists and how-to guides, calculators, case studies, quizzes and a monthly newsletter.
Find out more
The ASFA Retirement Standard Explainer says a comfortable retirement lifestyle would need $640,000 in super for a couple, or $545,000 for a single person.How much does a retired couple need to live on in Australia? ›
Breaking down the ASFA Retirement Standard.
|Budget / lifestyle for couples||Aged 65||Aged 85|
A good retirement income is about 80% of your pre-retirement income before leaving the workforce. For example, if your pre-retirement income is $5,000 you should aim to have a $4,000 retirement income.How much does the average retiree need to live on? ›
But, generally speaking, most experts agree that you will need 70-80% of your pre-retirement income to maintain your standard of living in retirement. For example, if you earned $50,000 per year ($4,167 a month) before retiring, you would need approximately $35,000-$40,000 per year in retirement.How much savings do you need to live in Australia? ›
If your monthly living expenses are $2,000, aim to have at least $6,000 in savings at a minimum. If they are higher, around $4,000, aim to have closer to $12,000 at all times. This varies depending on individual circumstances and how you choose to spend on material items.How much money do you need once you retire? ›
More? Financial planners often recommend replacing about 80% of your pre-retirement income to sustain the same lifestyle after you retire. This means that, if you earn $100,000 per year, you'd aim for at least $80,000 of income (in today's dollars) in retirement.How much does the average retired couple live on per month? ›
Social Security benefits may be a central part of your income plans. According to the Social Security Administration (SSA), a retired couple should expect to receive $2,753 on average in monthly benefits for 2022.How much does a retired couple need monthly? ›
The general wisdom is that you will need 70 to 80 percent of your current salary to maintain a similar lifestyle in retirement. That means if you made $100,000 each year, you should plan to have $70,000 to $80,000 in retirement income, for example.How much does a retired couple spend a month? ›
According to the U.S. Bureau of Labor Statistics, a household run by someone 65 or older spends on average $50,220 per year (approximately $4,185 a month). How are you going to pay for these expenses?Can you live on 3000 a month in retirement? ›
Whether you want to retire in a big city or a small town, you can live comfortably in some places for $3,000 a month or less.
Average savings: The average savings for those 55-65 is $197,322, and the average for those over 65 is $216,720. Your "official" retirement age is usually defined by when you're eligible to receive full Social Security benefits.What is the average retirement income in 2022? ›
Average Household Retirement Income 2022:
Mean Income – $71,446 (down from $84,153 in 2019)
The Harvard study found that housing, at a national average of $17,454 annually for retirees in 2021, remains the highest cost for the average retiree. Housing includes rent or mortgage payments (including principal, interest, taxes, and homeowners' insurance).How much money do most people retire with? ›
According to Northwestern Mutual's 2021 Planning & Progress Study, there are signs that Americans may be increasing their personal savings. The average personal savings increased by 10%: from $65,900 in 2020 to $73,100 in 2021. Likewise, the average retirement savings increased by 13%: from $87,500 to $98,800.How can I live cheap in retirement? ›
- Stick to a Budget. ...
- Plan for Healthcare Costs. ...
- Cut Your Housing Costs. ...
- Pay Yourself. ...
- Move to a Lower Cost Area. ...
- Forgo Eating Out. ...
- Hire a Financial Advisor. ...
- Reassess Your Insurance Needs.
Salary between AUD$90,000 – AUD$108,000 annually or AUD$7,500 – AUD$9,000 monthly is considered a good salary in Australia. That said, the national average is about AUD$90,000 per year. In major cities such as Sydney and Melbourne, you can expect a higher salary of around AUD$110,000 – AUD$150,000.How much is monthly cost of living in Australia? ›
Average cost of living in Australia per month
This is excluding rent, which for a one-bedroom apartment would be AU $1,190. All of this adds up to AU $2,522.33 per month or $30,267.96 per year.
Dr Morris says that while, on average, Australians who earn $74,000 or more are happier than those who don't, there are still happy people who earn less, and people who earn more but are unhappy.How much super do I need to retire at 60 in Australia? ›
ASFA estimates people who want a comfortable retirement need $640,000 for a couple, and $545,000 for a single person when they leave work, assuming they also receive a partial age pension from the federal government. For people who are happy to have a modest lifestyle, this figure is $70,000.Is $6000 a month good for retirement? ›
With $6,000 a month, you have more money than the average retiree—Americans aged 65 and older generally spend roughly $4,000 a month—and therefore more options on where to live. Below, we list five spectacular places where you might consider spending your golden years.
- Boise, Idaho. ...
- Virginia Beach, Virginia. ...
- Reno, Nevada. ...
- Las Vegas, Nevada. ...
- Mesa, Arizona. ...
- Phoenix, Arizona. ...
- Jacksonville, Florida. ...
- Forth Worth, Texas.
As of January 2022, retired couples who receive Social Security benefits collect an average of $2,753 per month. This amount equates to what you could get with a minimum wage job.How much money do I need to retire with $4000 a month? ›
If your retirement expenses are $4,095 * 12 months = $49,140 (annual income) divided by 0.04 = $1,228,500. So yes, to collect just over $4,000 per month, you need well over a million dollars in retirement accounts. To be safe, we'll round that up to $1.5 million for the rest of the steps.How much should a retired couple have in savings? ›
We estimated that most people looking to retire around age 65 should aim for assets totaling between seven and 13½ times their preretirement gross income.What does the average retiree do all day? ›
According to the American Time Use Survey, most retirees spend 16 hours a day on sports activities, leisure time and personal care (including sleep). Many retirees also spent a few hours a week on work-related activities. This is often volunteer work or a fun retirement job.How much should a retired couple spend on groceries? ›
|The Cost to Eat in Retirement For a Retired Couple|
|Average Cost Per Meal||20-Year Retirement Period||30-Year Retirement Period|
|With 2% Inflation||$532,112.40 ($14.56 per meal||$888,440.94 ($17.76 per meal)|
- If You Want a Walkable City Near the Beach: Savannah, Georgia.
- If You Want a Thriving Downtown: Provo, Utah.
- If You'd Like to Live Near a Lake: Bella Vista, Arkansas.
- If Warm Weather and Good Health Care Are a Priority: Gainesville, Florida.
Retiring on $4,000 a month will give the average American plenty of options for a fulfilling retirement—and leave some room to splurge on the grandkids and travel. So how do you pick a spot?Is 500 a month enough for retirement? ›
Most experts recommend putting at least 10% to 15% of your income toward your retirement fund, so $500 per month is right on target according to this guideline.How much should a 70 year old have saved for retirement? ›
By age 70, you should have at least 20X your annual expenses in savings or as reflected in your overall net worth. The higher your expense coverage ratio by 70, the better. In other words, if you spend $75,000 a year, you should have about $1,500,000 in savings or net worth to live a comfortable retirement.
Retirement experts have offered various rules of thumb about how much you need to save: somewhere near $1 million, 80% to 90% of your annual pre-retirement income, 12 times your pre-retirement salary.How much cash should you keep in the bank? ›
Money in your savings account
If you're employed, a general rule for how much cash to keep in a savings account is enough to cover at least three- to six-months' worth of living expenses. This can help you cover unexpected expenses that may pop up, such as urgent repairs or medical bills.
This is a difficult question because it depends on many things, such as your pre-retirement annual income, expenses, and retirement goals. However, in general, $150,000 is a good retirement income.Is it a good time to retire in 2022? ›
Inflation, market volatility and an aging population make 2022 “one of the worst years to retire.”How long will 600k last in retirement? ›
You expect to withdraw 4% each year, starting with a $24,000 withdrawal in Year One. Your money earns a 5% annual rate of return while inflation stays at 2.9%. Based on those numbers, $600,000 would be enough to last you 30 years in retirement.What is the 3 retirement rule? ›
That's partly why today's financial advisors are telling people to plan for a 3% withdrawal rate. This advice follows the idea of "Hope for the best, plan for the worst." Plan your necessary expenses at 3%. If stocks tumble, and you're forced to withdraw 4% to cover your bills, you'll still be safe.What is the 4 rule in retirement? ›
The 4% rule is easy to follow. In the first year of retirement, you can withdraw up to 4% of your portfolio's value. If you have $1 million saved for retirement, for example, you could spend $40,000 in the first year of retirement following the 4% rule.Where can I live on $2 000 a month? ›
- 10 Countries Where You Can Live Comfortably on $2,000 per Month. Panama. Costa Rica. Mexico. Ecuador. Malaysia. Colombia. Portugal. Thailand. Spain. Italy.
- How to Generate $2,000 per Month.
- Final Word.
Here are the seven most affordable states to retire, according to Bankrate:
- Malaysia. ...
- Spain. ...
- Costa Rica. ...
- Panama. Cost of Living Index: 48.25. ...
- Peru. Cost of Living Index: 30.74. ...
- Slovenia. Cost of Living Index: 47.30. ...
- Austria. Cost of Living Index: 64.11. ...
- Australia. Cost of Living Index: 72.27.