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What Are the Biggest Expenses in Retirement?

June 23, 2023 | Retirement Planning

Planning for retirement is more than just saving money. It’s also about strategising for a future that is not only secure but also comfortable and fulfilling. A crucial part of this strategy is to understand and navigate the various potential expenses in retirement that you may encounter.

This is particularly relevant given recent statistics showing that Australians aged 65 and over now make up approximately 16% of the total population, a figure that’s projected to increase because of longer life spans and lower birth rates. This trend could potentially pose challenges to the country’s healthcare and social security systems, underscoring the importance of an individual’s financial preparedness.

In this article, we will explore the biggest expenses that Australians typically face during retirement, from lifestyle and leisure costs to healthcare and unexpected emergencies. By shedding light on these costs, we aim to help you make informed financial decisions for your golden years.

The ASFA Retirement Standard

One valuable resource on budgeting for retirement expenses is the Association of Superannuation Funds of Australia (ASFA) Retirement Standard. The ASFA Retirement Standard is a detailed benchmark that illustrates the annual budget needed by Australians to sustain either a comfortable or modest lifestyle during retirement. It provides a breakdown for both singles and couples and is updated every quarter to reflect inflation and evolving consumer trends based on the Consumer Price Index (CPI).

It’s a valuable tool for estimating how much you would need to save for retirement, comparing your spending habits with the general average, and identifying potential savings areas. The amounts are computed based on the assumptions that one is retiring at age 65, owns a home, is reasonably healthy, receives a partial Age Pension, and has spending habits similar to the average Australian:

  • For retirees aged 65-84, a comfortable lifestyle requires an annual expenditure of $70,482 for a couple and $50,004 for a single individual, while a modest lifestyle would need $45,808 and $31,785 respectively.
  • For retirees aged 85 and above, the annual expenditure needed decreases slightly to $64,536 for a couple and $46,618 for a single person living a comfortable lifestyle, or $42,127 and $29,378 respectively for a modest lifestyle.

ASFA Retirement Standard – March 2023

For retirees aged 65-84
CoupleSingle
Comfortable LifestyleModest LifestyleComfortable LifestyleModest Lifestyle
Total weekly expenditure$1,350.23$877.55$957.94$608.91
Total annual expenditure$70,482.00$45,808.00$50,004.00$31,785.00
For retirees aged 85 and above
CoupleSingle
Comfortable LifestyleModest LifestyleComfortable LifestyleModest Lifestyle
Total weekly expenditure$1,236.33$807.03$893.07$562.79
Total annual expenditure$64,536.00$42,127.00$46,618.00$29,378.00

Source: https://www.superannuation.asn.au/resources/retirement-standard

However, remember that everyone’s circumstances and goals differ. While this standard provides a helpful starting point, it’s important to tailor your retirement planning according to your unique needs and aspirations. Let us now take a closer look into the specific categories of expenses you may face during retirement.

Health Care Costs

ASFA Retirement Standard – March 2023: HEALTH SERVICES

Expenditure Items (weekly):

Health Insurance, Chemist, Co-payment & Out of pocket, Vitamins and other over-the-counter meds

For retirees aged 65-84
CoupleSingle
Comfortable LifestyleModest LifestyleComfortable LifestyleModest Lifestyle
$209.64$106.35$112.01$55.03
For retirees aged 85 and above
CoupleSingle
Comfortable LifestyleModest LifestyleComfortable LifestyleModest Lifestyle
$249.10$134.27$158.73$96.65

Source: https://www.superannuation.asn.au/resources/retirement-standard

Rising Healthcare Expenses in Retirement

As we journey into our golden years, the need for medical care often increases, leading to a rise in healthcare costs. Indeed, over the past decade, the country’s health expenditure has been on an upward trend, even prior to the COVID-19 crisis. This highlights the crucial importance of anticipating and planning for these rising healthcare costs in retirement.

Medicare Coverage and Potential Gaps

Australia’s universal health insurance scheme, Medicare, offers a wide range of medical services, lower-cost prescriptions, and free care as a public patient in a public hospital. However, it doesn’t cover everything. For example, most dental care, glasses, and hearing aids are not covered by Medicare. Also, certain prescription medications might require out-of-pocket costs. Being aware of these potential gaps can help you prepare a more accurate retirement budget.

Supplemental Insurance Options

To bridge these gaps in Medicare, many Australians consider supplemental insurance, such as private health insurance with ancillary cover. These plans can provide coverage for the cost of services not included in Medicare.

Private health insurance can cover costs like accommodation, meals, and treatment in private hospitals. Ancillary cover, also known as ‘extras’ cover, can help manage costs for services like optical care, dental services, and physiotherapy. Some policies may also offer prescribed medication coverage, helping with the costs of prescription drugs. The Private Health Insurance Ombudsman (PHIO) offers a wealth of resources to help you learn more about your supplemental insurance options.

Long-term Care Considerations and Costs

Another significant consideration is long-term care. Whether it’s in-home care or residential aged care facilities, the costs can be substantial and can vary greatly. It’s prudent to research the costs associated with different long-term care options in your area and factor them into your retirement budget. The Department of Health and Aged Care and the MyAgedCare website provides valuable information and tools on aged care options and costs.

Housing Expenses

ASFA Retirement Standard – March 2023: HOUSING

Expenditure Items (weekly):

Building and contents insurance, Council rates, Water rates, Home improvements, Repairs and maintenance

For retirees aged 65-84
CoupleSingle
Comfortable LifestyleModest LifestyleComfortable LifestyleModest Lifestyle
 

 

$136.61$125.13$130.96$111.29
For retirees aged 85 and above
CoupleSingle
Comfortable LifestyleModest LifestyleComfortable LifestyleModest Lifestyle
$136.61$125.13$130.96$111.29

Source: https://www.superannuation.asn.au/resources/retirement-standard

Housing Choices in Retirement

Housing is a key consideration in retirement planning as it typically forms a significant part of retirement expenses. Whether you’re planning to stay in your current home, downsize to a smaller property, or even move to a retirement community, remember that each choice carries its own set of costs and benefits. These choices can significantly influence your financial situation in retirement, and hence, deserve careful consideration.

Mortgage or Rent Payments

If you are a homeowner, ideally you would want to have your mortgage fully paid off by the time retirement rolls around. If that’s not the case, then these ongoing payments need to be factored into your retirement budget. On the other hand, if you plan to rent, keep in mind that rental payments will be an ongoing expense. In either scenario, having a clear understanding of these costs can help you build a more accurate retirement budget.

Home Maintenance and Repairs

Don’t overlook the costs of maintaining your home and making necessary repairs. As homes age, they often need more frequent and costly repairs. This might include everything from minor fixes to major renovations. It would be wise to set aside funds for these inevitable costs or consider options that might require less maintenance, such as a smaller home.

Downsizing and Relocation Considerations

For some, downsizing to a smaller property can be an attractive option. It can reduce living costs, and potentially free up some equity from your existing home. However, downsizing isn’t without its own costs. There are moving costs, stamp duty, and even the emotional impact of leaving a familiar place. It’s important to weigh these considerations against the potential benefits before making a decision.

Lifestyle and Leisure Expenses

ASFA Retirement Standard – March 2023: LEISURE

Expenditure Items (weekly):

Membership clubs, TV, DVD, Streaming services (Stan/Netflix or like), Alcohol consumed, Charity or church, Lunches and dinners out, Cinema, theatre, sports and day trips, Domestic vacations, Overseas vacations, Take away food, snacks

For retirees aged 65-84
CoupleSingle
Comfortable LifestyleModest LifestyleComfortable LifestyleModest Lifestyle
$329.19$177.31$218.92$112.90
For retirees aged 85 and above
CoupleSingle
Comfortable LifestyleModest LifestyleComfortable LifestyleModest Lifestyle
$209.62$103.08$150.74$71.17

Source: https://www.superannuation.asn.au/resources/retirement-standard

Travel and Vacations

Many of us dream of jetting off to exotic locations or embarking on exciting road trips during retirement. However, while these adventures can enrich your retirement years, it’s essential to remember that travel and vacations often come with significant costs. Budgeting for these experiences is crucial, but there are also strategies to make them more affordable. For instance, you might consider taking advantage of senior discounts, travelling during off-peak seasons, or exploring less expensive local destinations.

Hobbies and Recreational Activities

Retirement is the perfect time to pursue your hobbies or discover new ones. Whether it’s golf, fishing, art classes, or gardening, these recreational activities can bring joy and fulfilment to your retirement years. However, they can also add up in terms of expenses. From equipment purchases to membership fees, it’s important to factor these costs into your retirement budget. Prioritising your favourite activities and planning for their financial implications can help you maintain a balanced budget without missing out on what you love.

Dining Out and Entertainment

Eating out at restaurants, attending concerts or theatre shows, and other forms of entertainment can also form a part of your leisure expenses in retirement. While these activities can greatly enhance your lifestyle, it’s important to budget for them appropriately. Consider setting a monthly budget for dining and entertainment that aligns with your overall financial plan. This way, you can enjoy these experiences without straining your finances.

Socialising and Memberships

Retirement is a prime opportunity for social engagement through clubs, organisations, or community groups, providing a sense of belonging. However, these memberships, such as book clubs, fitness clubs or golf and bowling clubs, often involve fees or dues. It’s important to balance their costs against their benefits and ensure they fit into your financial plan. While considering memberships, remember that not all social activities need to be expensive. Volunteering or joining local community groups, for instance, can be low-cost or free alternatives. Prioritising and planning well for these expenses can let you enjoy an active social life in retirement without straining your finances.

Taxes and Insurance

Tax Implications in Retirement

Even in retirement, taxes remain a part of life. Understanding the tax treatment of superannuation withdrawals, age pension, and investment income can help you make more sound financial decisions. Typically, many retirees will still need to file a tax return if they are receiving assessable income from investments or part-time employment on top of their Superannuation Income Stream or Age Pension. Consider consulting a tax professional to help navigate these complexities and provide you with advice for your specific situation.

Home and Contents Insurance

Safeguarding the assets you’ve worked hard for all your life is crucial. Home and contents insurance can help protect you from financial losses in the event of damage to your home. It would be prudent to shop around and compare policies first to ensure you’re getting the best deal and the most suitable coverage.

Life Insurance Premiums

The need for life insurance may lessen in retirement, especially if you no longer have dependents or outstanding debts. However, it’s good practice to review your policy periodically to ensure it still aligns with your and your family’s needs. Remember, premiums can vary significantly between providers, so it’s worth shopping around.

Other Insurance Considerations

Don’t forget about other types of insurance like car, health, and funeral insurance. Beyond providing protection against unforeseen events, these insurance types could be crucial for maintaining your quality of life and health during retirement. These policies can provide financial protection against a range of risks and consider including them in your retirement budget.

Daily Living and Utilities

ASFA Retirement Standard – March 2023: FOOD

Expenditure Items (weekly):

Food – groceries and other

fresh food

For retirees aged 65-84
CoupleSingle
Comfortable LifestyleModest LifestyleComfortable LifestyleModest Lifestyle
$239.62$197.69$137.87$106.63
For retirees aged 85 and above
CoupleSingle
Comfortable LifestyleModest LifestyleComfortable LifestyleModest Lifestyle
$239.62$197.69$137.87$106.63

Source: https://www.superannuation.asn.au/resources/retirement-standard

ASFA Retirement Standard – March 2023: HOUSEHOLD GOODS & SERVICES

Expenditure Items (weekly):

Household cleaning and other supplies, Cosmetic and personal care items, Barber or hairdressing, Media, (including digital), Computer, printer and software, Household appliances, air conditioners, smartphone, Miscellaneous

For retirees aged 65-84
CoupleSingle
Comfortable LifestyleModest LifestyleComfortable LifestyleModest Lifestyle
$104.21$45.29$84.35$38.67
For retirees aged 85 and above
CoupleSingle
Comfortable LifestyleModest LifestyleComfortable LifestyleModest Lifestyle
$200.68$81.59$167.33$56.83

Source: https://www.superannuation.asn.au/resources/retirement-standard

Groceries and Household Essentials

Staple expenses such as groceries and household essentials don’t retire when you do. These are ongoing but indispensable costs that must be factored into your retirement budget. Track your spending on these necessities and employ cost-saving strategies. For example, planning meals in advance, making a shopping list, and shopping sales or buying in bulk can help you manage your grocery expenses efficiently without compromising on your lifestyle.

ASFA Retirement Standard – March 2023: UTILITIES

Expenditure Items:

Electricity and gas

For retirees aged 65-84
CoupleSingle
Comfortable LifestyleModest LifestyleComfortable LifestyleModest Lifestyle
$61.61$52.67$49.68$39.21
For retirees aged 85 and above
CoupleSingle
Comfortable LifestyleModest LifestyleComfortable LifestyleModest Lifestyle
$61.61$52.67$49.68$39.21

Source: https://www.superannuation.asn.au/resources/retirement-standard

Utility Bills

Utility costs, including electricity, water, and gas, are another chunk of your retirement expenses. Being mindful of your energy consumption can help reduce these costs. Consider using energy-efficient appliances, adjusting thermostats for optimal temperature, and using water judiciously. Additionally, reach out to your service providers to inquire about potential senior discounts or rebates.

ASFA Retirement Standard – March 2023: TRANSPORT

Expenditure Items (weekly):

Car transport and running costs, Taxis and ride sharing, Public transport

For retirees aged 65-84
CoupleSingle
Comfortable LifestyleModest LifestyleComfortable LifestyleModest Lifestyle
$188.33$113.32$173.91$106.42
For retirees aged 85 and above
CoupleSingle
Comfortable LifestyleModest LifestyleComfortable LifestyleModest Lifestyle
$58.09$52.81$47.53$42.25

Source: https://www.superannuation.asn.au/resources/retirement-standard

Transportation Expenses

Getting around also comes at a cost, whether it’s maintaining a car or using public transportation. As you transition into retirement, your transportation needs might change. Consider whether you can downsize to a single vehicle or utilise alternative transportation options such as public transport or ridesharing services. These changes can potentially lead to significant savings.

ASFA Retirement Standard – March 2023: COMMUNICATION & INTERNET SERVICES

Expenditure Items (weekly):

Home phone, broadband,

mobile bundle

For retirees aged 65-84
CoupleSingle
Comfortable LifestyleModest LifestyleComfortable LifestyleModest Lifestyle
$29.17$20.19$22.41$17.92
For retirees aged 85 and above
CoupleSingle
Comfortable LifestyleModest LifestyleComfortable LifestyleModest Lifestyle
$29.17$20.19$22.41$17.92

Source: https://www.superannuation.asn.au/resources/retirement-standard

Communication and Technology Costs

In today’s digital age, communication and technology costs are a significant part of our lives. Expenses for mobile phone plans, internet services, and device upgrades are ongoing. To manage these expenses, consider bundling services where possible. Regularly review your plans to ensure they suit your needs and aren’t more than you require. You can also explore senior discounts, seniors cards, and government benefits for seniors such as an internet data or telephone allowance that may be available in your area.


Family and Support Expenses

Financial Assistance to Children or Grandchildren

Retirement may come with the desire or need to support your loved ones financially. This act of generosity can become a substantial part of your expenses. As such, it’s vital to take into account these costs in your retirement planning. Remember, while helping your loved ones is commendable, it’s equally important to ensure that your support aligns with your financial capabilities. Having open communication and setting realistic expectations can help manage these expenses effectively.

Supporting Ageing Parents or Family Members

In some cases, retirement might coincide with the need to care for ageing parents or other family members. This situation can introduce additional expenses into your retirement planning. It’s essential to be mindful of these potential costs and plan accordingly to avoid undue financial stress.

Caregiver Expenses

Whether for yourself or for a loved one, caregiver expenses can become a significant part of your retirement costs if assistance with daily activities is needed. Although the costs may vary according to the type of care you or your loved one would need and you can apply for a government subsidy, overall long-term care can be expensive, so it’s crucial to have a contingency plan or explore long-term care insurance options. This preparation can provide peace of mind and financial security.

Estate Planning and Legal Costs

Managing your legacy can involve complex legal arrangements, such as creating or updating a Will, setting up trusts, and planning for any administrative costs associated with managing your estate. These can entail significant costs, depending on the complexity, but can help prevent future financial complications for your loved ones. Factor the costs into your retirement budget, and consider working with a professional to navigate the legal and tax intricacies of estate planning.

Unexpected Expenses and Emergencies

The Importance of Emergency Funds

Life’s unpredictability can often bring unforeseen expenses that might disrupt your financial plans. An emergency fund is a practical solution to manage these surprises without threatening your retirement savings. Aim to save at least three to six months’ worth of living expenses. This money should be readily accessible and act as a financial safety net during emergencies.

Unexpected Medical Expenses

Despite having insurance or Medicare, unexpected medical expenses can still catch you off-guard. These costs might include out-of-pocket expenses for specific procedures, medications, or specialists’ services. Therefore, it would be a wise move to explore private health insurance policies that could supplement your healthcare coverage and provide a buffer against unplanned medical costs as well as factor significant medical expenses into your emergency fund.

Home or Vehicle Repairs

Home or vehicle maintenance is another area where unexpected costs might occur. Properties and vehicles inevitably require ongoing upkeep and occasional repairs, which can be costly. Incorporating a budget for maintenance and repairs is a sound decision. Regular inspections and preventative maintenance can help identify potential issues early on, reducing the risk of more expensive, major problems down the line.

Strategies to Manage Expenses in Retirement

1. Budget and Track Your Expenses

Carefully managing your expenses in retirement starts with creating a comprehensive budget and tracking your spending habits, such as with a budget planner or money journal. This approach helps you understand your financial situation better and identify areas where you can trim expenses without compromising your lifestyle. Adhering to your budget is important in maintaining financial stability throughout retirement.

2. Prioritise Spending and Identify Cost-Saving Opportunities

In addition to budgeting, it’s crucial to prioritise your spending. Differentiate between essential needs and discretionary wants. Allocate funds for essential needs first, then distribute the remaining funds for leisure and other activities accordingly. Be proactive in identifying ways to save on costs, such as senior discounts or bulk buying.

3. Review Insurance and Healthcare Plans Regularly

As your needs change in retirement, your insurance and healthcare plans should evolve accordingly. Regularly review your policies and compare rates from different providers to ensure you’re receiving the best coverage at the most competitive prices. This practice ensures that your plans continue to meet your needs and remain cost-effective, providing you with peace of mind.

4. Seek Professional Financial Advice

Lastly, don’t hesitate to seek professional financial advice. Consulting with a financial adviser specialising in retirement planning can be invaluable. They can guide you through complex financial decisions, suggest strategies to maximise your retirement income, and offer tailored advice that suits your unique circumstances. This guidance can boost your self-confidence in taking charge of your financial future and enable you to make wise decisions that will benefit not only you but also your loved ones.

Summary

Retirement is a significant life transition that requires careful financial planning to ensure comfort and security. It is crucial to understand the major expenses in retirement, which include healthcare costs, housing expenses, lifestyle and leisure activities, taxes and insurance, daily living and utilities, family and support expenses, and unexpected emergencies. Using resources like the ASFA Retirement Standard can provide a convenient starting point, helping you understand the average costs for a comfortable or modest lifestyle in your golden years.

However, remember that a solid retirement strategy doesn’t stop at understanding these costs. It also involves proactive steps such as smart budgeting decisions, prioritising spending, regular reviews of insurance and healthcare plans, and seeking professional financial advice. These actions can help you navigate expenses in retirement effectively, ensuring you reap the well-deserved rewards of your working years. Embrace this exciting new chapter of life with financial confidence, and make the most of your retirement.

Plan Your Retirement with Coastal Advice Group

Retirement is a significant life milestone that allows you to rest and enjoy the fruits of your hard-earned labour. However, it’s not a one-size-fits-all plan, and since everyone has specific needs and wants, hiring an expert retirement adviser can help you plan a secure and comfortable retirement. 

If you want to enjoy retirement with peace of mind knowing there is a financial strategy to take care of the future, speak to the team at Coastal Advice Group. We help our clients enjoy their dream retirement through personalised financial advice.  

Call us or book online to secure your consultation today! 

References:

  • https://www.aihw.gov.au/reports/older-people/older-australians/contents/demographic-profile
  • https://mccrindle.com.au/article/topic/demographics/record-low-birth-rates-and-a-record-high-life-expectancy/#:~:text=%E2%80%9CAustralia’s%20population%20is%20larger%20than,rates%2C%20but%20longer%20life%20expectancy.
  • ASFA Retirement Standard
  • https://www.superannuation.asn.au/resources/retirement-standard
  • Health Care
  • https://www.aihw.gov.au/reports/health-welfare-expenditure/health-expenditure-australia-2020-21/contents/overview/total-health-spending
  • https://www.health.gov.au/topics/medicare/about/what-medicare-covers#:~:text=Medicare%20does%20not%20cover%20the,glasses%20and%20contact%20lenses
  • https://www.privatehealth.gov.au/
  • https://www.health.gov.au/topics/aged-care
  • https://www.myagedcare.gov.au/
  • Housing
  • https://moneysmart.gov.au/retirement-income/downsizing-in-retirement
  • Taxes & Insurance
  • https://www.ato.gov.au/Individuals/Super/In-detail/Withdrawing-and-using-your-super/Withdrawing-your-super-and-paying-tax/?page=4
  • Daily Living and Utilities
  • https://www.energy.gov.au/households/household-guides/life-stages-advice/seniors-guide-energy-saving
  • https://www.energy.gov.au/rebates/energy-rebate-seniors
  • https://www.service.nsw.gov.au/news/dozens-of-new-businesses-offer-discounts-to-seniors
  • https://www.sahealth.sa.gov.au/wps/wcm/connect/public+content/sa+health+internet/about+us/department+for+health+and+wellbeing/office+for+ageing+well/seniors+card/seniors+card
  • Family & Support
  • https://www.health.gov.au/topics/aged-care/about-aged-care/how-much-does-aged-care-cost#costs-vary-for-each-person
  • https://www.ato.gov.au/Business/Privately-owned-and-wealthy-groups/Tax-governance/Tax-governance-guide-for-privately-owned-groups/Estate-planning/
  • https://moneysmart.gov.au/living-in-retirement/wills-and-powers-of-attorney
  • Unexpected Expenses & Emergencies
  • https://moneysmart.gov.au/saving/save-for-an-emergency-fund

DISCLAIMER: The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice. Newcastle Financial Planning Group, Central Coast Financial Planning Group, Sydney Wealth Advisers, Coastal Advice Port Macquarie and Coastal Advice Ballina Byron are subsidiaries of Coastal Advice Group Pty Ltd which is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.