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Do people spend more or less money in retirement?

Our clients tell us they’d like to maintain their current lifestyle in retirement. But is it realistic to keep spending as much after you stop work?

How expensive is retirement?

Coming up with a number for your cost of living in retirement is tricky but not impossible. Knowing what you will - or would like to - spend your money on in retirement is a key step in any retirement plan.

Reverse engineering

Working from your current budget is one of the easiest places to start. It’s then a question of thinking about what will change once you retire. Spending on things like groceries, clothing and utilities may not change that much. Whereas something like transports costs can be less when you’re no longer commuting to work. When it comes to budgeting for retirement, try to work off an annual income that takes into account both daily and one-off costs.

Crunching the numbers

The Association of Superannuation Funds of Australia has done some of the hard work for you. They allow an annual income of around $60,000 for a couple to live a comfortable lifestyle in retirement. In ASFA terms ‘comfortable’ means enough to enjoy recreation activities, have private health insurance, own a reasonable car, buy household goods when they need them, and take regular holidays.

The ASFA Retirement Standard figures are also a good starting point for estimating expenses and they are updated quarterly. For example, the latest Retirement Standard figures give you an idea of how much Aussies spend on travel in retirement. For a couple on a comfortable annual budget, $1400 goes towards overseas trips. But they also spend nearly twice as much – $3700 – on domestic travel. Living on a modest budget means foregoing overseas travel altogether and spending only $2600 each year on travel in Australia.

Location counts

Where you decide to live can have a big impact in your retirement lifestyle and budget. ASFA Retirement Standard estimates assume you’re living mortgage-free in your own home. Finding extra money for rent or loan repayments can push up your living expenses. Being debt free in retirement is a priority for most of our clients. In fact we’re often asked whether to put ‘spare cash’ towards paying off the mortgage or maximising super contributions. If you’re a member of a defined benefit scheme the answer may surprise you.

The ‘bucket list’ years

Another theme we see is people leading a more active and varied lifestyle in early retirement to make the most of good health. Many people have two phases to their retirement plan:

  • The ‘bucket list years’ – this decade or so that people have saved for and they expect to spend more on things like travel, hobbies and family
  • The ‘old age’ years - while coming to the end of this life stage can lower your expenses, this can be offset by rising medical costs

All in all, it can help you to budget for your whole retirement if you plan to reduce your living costs as you grow older, to allow for the expenses that come with changes in your health or your desire to leave money to your family.

Need help managing your money?

Getting expert advice can make a big difference to how prepared you are for retirement - both emotionally and financially. By discussing your lifestyle goals with a StatePlus financial planner you’ll have a much better understanding of the super and income you’ll need to make retirement a positive change in your life.

For more tips and tools, download our free Retirement guide or call us on 1800 620 305.

This is general information and does not take into account your personal objectives, financial situation or needs. It is important to seek financial and taxation advice that takes into account your personal objectives, financial situation and needs before making any decisions based on this information.

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