New research has revealed that most retirees do not spend as much as has been thought in retirement, and that this does not vary as much as expected regarding income levels — apart from the lowest income households. The study also suggests that policy proposals regarding superannuation tax concessions may miss the mark as far as influencing the ability of retirees to fund their lifestyles.
Commissioned by the Australian Institute of Superannuation Trustees (AIST), the Expenditure patterns in retirement report was developed by Monash Business School’s Australian Centre of Financial Studies using 12 years of data (from 2002 to 2014) from Household, Income and Labour Dynamics in Australia (HILDA) surveys. Scroll down to the end of this article to download the full report.
It suggested 80% of the 9,500 retiree households surveyed only spent up to the level considered to provide a “basic” annual living standard in retirement – couples spent $43,226 a year on average while singles spent $23,797.
The retirement living standard referred to is based on the Association of Superannuation Funds of Australia’s (ASFA) “retirement standard”, although AIST says its study “does not represent a re-examination or critique of the ASFA standard, which has a different methodology and remains a useful benchmark”.
One of AIST’s concerns, which formed part of its drive to commission the study, was that “there has been little research into the real experiences of Australian retirees, with superannuation outcomes largely measured against budget standards”. It says learning more about retirees’ actual expenditure in retirement would help the government and super industry come to evidence-based decisions about adequacy and super policy.
It concludes, for example, that more still needed to be done to increase the equitability of the system, with the research showing that 15% 0f retirees were renters, and 8% were beginning their retirement with a home loan still to pay off.
There were also significant regional variations in expenditure levels for retirees across Australia, with those in Sydney recording the highest average household expenditure of around $44,000, compared to around $34,000 for those living in Melbourne and $25,000 for those in Tasmania.
The research also broke down the average household expenditure as a percentage by item, as shown in the graph below (2014 figures).
Other key findings of the research include:
- the highest earning households save a significant proportion of their income; for most other households expenditure and income levels are similar, the exception being very low income households which appear to be spending more than their income
- 15% of all retirees are renters; 8% still have a mortgage to pay off
- housing costs are significant for the minority of retirees who do not own their homes
- self-funded retirees enjoy a significantly higher standard of living than those relying solely on the Age Pension
- overall, this is the wealthiest retired generation ever in Australian history, with household wealth and income continuing to increase with each successive HILDA survey. Further, today’s retirees are spending more than earlier cohorts at a similar age
- contrary to findings commonly cited in research, HILDA households do not show a decline in expenditure through the course of retirement
- while there is significant income disparity within the HILDA population, the level of household expenditure varies more according to geographic location than it does by level of income. Retirees in NSW spend the most, with retirees in SA and Tasmania spending the least
- superannuation has been the fastest growing source of retiree household wealth
- wages and super contribute significant income in the early stages of retirement
- the key expense for retirees over 65 is groceries and meals eaten out.
The report recommends that future HILDA surveys include more research on household goods and services, leisure activities and aged care costs.