Cost of retirement rises so start saving early

A couple enjoying a ‘comfortable’ retirement now spend $56 339 a year while a couple living a ‘modest’ lifestyle spend around $31 555 a year according to December 2012 figures released by the Association of Super Funds of Australia (AFSA).

An explanation of the difference between a ‘comfortable’ and ‘modest’ retirement lifestyle can be found on our “How much do I need in retirement” page and the figures assume a home is owned debt-free.

The costs for both lifestyles have risen by more than inflation over the quarter to December with the largest rise relating to increased costs for:
- Domestic holiday travel and accommodation (up 6.2% on September quarter)
- Car fuel (up 2.6%).

These increases were offset by price falls for:
- Vegetables (down 5.7% due to improved weather)
- Audio, visual and computing equipment (down 4.3% on continuing strength of our dollar and retail discounting)
- Pharmaceutical products (down 3.5% - mainly due to more becoming eligible for the safety net).

However, despite recent falls in pharmaceutical costs, over the long-term the trend has been for significant increases in the health costs for many retirees, particularly in the last few years of life.

What this means for our clients is that a comfortable retirement requires both saving for the future as well as earning a good return from the investment markets, but we can only control one of these two variables.

How much should you save?  Research over time consistently suggest a need to save around 15% of salary and investing in a diversified portfolio of shares and fixed income investments over a 30 year working life, while minimising tax and costs. 

For those starting to save later in life, from the mid-40s for example, a higher savings rate of around 20% is needed to build up a large enough pool to ride the down turns.

Costs also matter, so using the tax-effective super environment for the bulk of your retirement savings to minimise tax, along with choosing a low cost fund should help you to retain as much of your savings as possible to build your retirement asset pool.

If you would like to discuss saving or planning for your retirement or perhaps helping your super to work better for you, please feel free to contact our Partner – Wealth Consulting, Michael Rees-Evans CFP® on 02 9299 7044, or visiting our Where do I start page and completing the online questionnaires.

Comments are closed.