Table of Contents

The cost of retirement

The common question when it comes to retirement is ‘how much is enough?’.

Estimating your future living expenses can be difficult. Your lifestyle and behaviors may change as you approach retirement, affecting your finances. If only the answer was simple! But the fact is that the answer varies due to a range of factors, including your lifestyle aspirations, personal health and family commitments. But regardless of how much you have put aside, there’s a significant potential cost in retirement that is often not considered, and if ignored, it can undermine our plans – aged care.

According to the Association of Superannuation Funds of Australia (ASFA), to achieve comfortable retirement, single adults aged 67 would need $595,000 in retirement savings, while couples will need $690,000, based on March 2023 quarter. That means a single person’s (aged 65-84) annual budget should be $50,207.02, and a couple’s (aged 65-84) annual budget should be $70,806.43 to cover food and utility bills, as well as health, communication, clothing, travel, and household products.

None of us wants to imagine a time when we are no longer able to look after ourselves without assistance. But the reality is that around one-quarter of our retirement may be ‘frailty years‘, where help is needed with the activities of daily living. Planning ahead for this time allows you to maintain greater control of your life, so that your choices – for example, home care versus residential care – can be respected. But it all costs money.

The high cost of living in Australia

In Australia, retiring in comfort is no small feat. The cost of just basic everyday necessities is enough to eat up many seniors’ bank accounts in no time flat. After decades of hard work and dedication, retirees are too often forced to keep working just to make ends meet. With sky-high rent prices, the Australian dream of retiring soon becomes like a fantasy for most seniors who already live paycheck-to-paycheck.

So if you want any chance at retiring in Australia before you can afford to buy your own yacht, it’s wise to start budgeting early on – because every dollar counts!

Seniors forced into smaller, affordable housing from their homes

As we grow older, our homes can feel increasingly like a burden, making it hard to stay in the same place regardless of the emotional attachment. For seniors, this reality becomes especially poignant as they often have to face the fact that their large homes are too expensive and no longer practical. It’s a tough decision to make, but sometimes trading size and equity for convenience can be worth it.

After all, what good is remaining in your home if all it does is cause worry about how you will pay for things? When faced with this challenge, many seniors find that downsizing is the best option for them since it allows them to live more comfortably and without feeling like money’s an issue.

While lifestyle spending does tend to reduce as we progress through retirement, expenses can ramp up again during the “frailty” years – on average, the last three to five years of life, generally after age 80. It is during this phase that we are likely to have some form of disability caused by ageing which causes a general decline in independence. And we may become more reliant on others.

Increasing longevity and expectations around the quality of care are also putting greater pressure on income needs in the later phase of retirement.

Because aged care is expensive, the government subsidises the costs, but you will still need to pay some of the costs – based on your assessed level of affordability. Access to capital or income at this time may allow you to have greater choices and control over the quality of your care, which is why planning for the cost of future care is critical to include in your retirement planning, and long before a crisis arises.

Financial planning is crucial for comfortable retirement

Retiring without financial planning could be a nightmare. In Australia, robust nest-eggs are essential for retirees to have the retirement they envision, and with correct financial planning, this is possible. It takes much more than saving money to create a plan that, when executed properly, can ensure comfortable and safe living throughout the golden years.

Outlining spending, setting budget goals and preparing financially for any life changes such as health costs should all play a part in your overall approach to wisely preparing for retirement in Australia.

Having a financial plan in place that clearly captures your goals, preferences and financial strategies, is a great way to keep on track throughout all phases of retirement. Take some of the worry out of future planning. Calculate how much super you’ll have when you retire and whether it’ll be enough to support your desired lifestyle. It’s never too early to begin making plans for a brighter financial future.

Plan B is crucial for unexpected retirement outcomes

Retirement can be a time of relaxation and exploration, but it’s important to plan for the unexpected. Having a plan B in place is key for those looking to enjoy their retired years without worry or stress – after all, nobody should be afraid of the future when they don’t have to be. Even if you’ve planned meticulously for your retirement, it’s always best to be prepared in case your original plans don’t pan out as expected.

Having that extra assurance will give you the freedom and confidence to truly explore what retirement has to offer. In other words, the more prepared you are for what may come, the better off you’ll be.

If you want to review your retirement plans and discuss how to start planning for your frailty years, make an appointment with us today, to learn more about how we can help you to maintain greater control and independence as you age.

[1] Australian Institute of Health and Welfare – Selected health expectancies at age 65 by sex, 2015