The Rising Cost of Living in Retirement – stretching your retirement dollar

Written on the 30 May 2022 by Parkside InvestorPlus

In the recent Federal Election, there were several focus areas on both sides of the camp – one in particular, was the rising cost of living.

We have all felt rising costs – most notably, fuel and even everyday staples like fruit and vegetables.

And with inflation running at 5.1% there are more cost increases coming.

Even if you are still in the workforce, with wages growth sitting at 2.4%, your ‘dollar buying power’ has effectively fallen by 2.7% (with inflation at 5.1%).

If you are still in your working phase of life, you may be able to cope and somehow compensate with the hope that inflation will be brought under control and your wage grows at a higher rate (remember interest rates are also on the rise).

However, if you’re in your retirement phase or fast approaching it, for many Australians, any cost of living increases simply puts pressure on their standard of living.

There are many publications/articles that say if you plan to keep enjoying your current lifestyle when you retire, our experience then you’ll need to save enough to provide you with at least 70% of your current annual income.

Moderate or Comfortable Income in Retirement?

The Association of Superannuation Funds of Australia (ASFA) reports regularly on the annual cost for singles and couples to achieve either:

A ‘modest’ retirement - which is better than relying on the Commonwealth Government Age Pension alone, but only allows for the basics (grocery, utilities, and some leisure activities).

A ‘comfortable’ retirement - which enables a good standard of living with enough to spend on a range of leisure activities and household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment and some travel.

The estimated income required for each of the above is as follows:

However, in most cases, couples are looking at $80,000 - $100,000/year as their retirement income to truly maintain the lifestyle they’ve become accustomed to.

How to Stretch your Retirement Dollar

With the rising cost of living, settling for a comfortable annual income (for couples) as per the table above could prove to be a challenge.

And even if you were able to draw $100,000 as an annual income from your super, could whittle away it’s earning power.

So, how can you stretch your retirement dollar to ensure you continue to live a lifestyle that you’ve been used to and secondly, and more importantly, you don’t run out of money too soon.

Here are 6 simple steps you can undertake to ensure your retirement savings go the distance.

1. First and foremost, you need to work to a budget.  Sit down with your spouse/partner and truly work out how much money you will need monthly to accommodate your lifestyle needs.  This at least sets the benchmark for your required income as well as setting realistic goals. Get some help from your adviser if required.
2. Look into the Home Equity Scheme.  Formerly the Pension Loan Scheme, this scheme is a way to top up your retirement income, even if you’re a self-funded retiree.
3. Health Insurance in retirement can be a ‘vampire cost’, meaning, each year the insurance companies tweak up their prices and you continue to pay the premiums.  Review your insurance policy to ensure it’s aligned with your stage in life.
4. Register for the Medicare Safety Net – registering for the Medicare Safety Net helps to lower your medical costs for out-of-hospital medical services such as, seeing a doctor or specialist, and for tests like CT scans and blood tests. Once you spend over a certain amount in a calendar year, you receive a higher amount back from Medicare.
5. Apply for your Seniors Card.  Everyone who is aged 60 and over can apply for their state government’s Seniors Card. These cards give you access to valuable concessions on transport costs and discounts from participating businesses for a wide range of goods and services.
6. If you are not on the Age Pension, then apply for the Commonwealth Seniors Health Card. This will assist with pharmaceutical costs.

If you’re approaching retirement or if you’re already retired, and you’re concerned about maintaining a comfortable standard of living in an environment of rising costs, come and see us at Parkside Investor Plus for a review of your current situation, (02) 9899 4899.