A recent research paper by the Australian Centre for Financial Studies (ACFS) has delved deeper into the spending habits of retirees in a bid to understand true costs and how Aussies are 'doing' retirement.
Spending patterns of Australian retirees were examined using two conceptual frameworks that are commonly used to benchmark expectations of standard of living in retirement. The first concept is the 'replacement rate', which is used to identify standard of living and income expectations for retirement based on previous income earned during the individual's life. The second concept is the cost-basis benchmark that places a cost on a basket of goods and services that a 'typical' retiree would use. The Association of Superannuation Funds of Australia (AFSA) uses this benchmark in the AFSA standard.
The research paper used the Household Income and Labour Dynamics in Australia (HILDA) data to look at the spending patterns of Australians from age 65 upwards.
There were several concepts that, under further scrutiny, do not appear to actually be true. These include the idea that retirees save up their whole lives then underspend in retirement so they can leave a bequest or with fear of running out of funds, and also that we do not spend less as we get older. In fact at some ages, we spend more.
Key findings from the HILDA study, reanalysed
- Eighty per cent of retired households report spending that is at or below ASFA's 'modest' standard
- This equalled about $24,000 for a single person and $34,000 for a couple who own their own home
- A quarter of households have an annual expenditure of less than $14,000
- Ten per cent of households said their annual expenditure was over $50,000
- Retirees are, for the most part, not saving money
- The lowest-earning 40 per cent are spending at or above their current income level and not saving at all
- The next three deciles are spending 60-70 per cent of their reported income
- The top 30 per cent of households by income (over $70,000 per annum) reported spending at 50 per cent or less than their reported income, but discretionary spending on things like holidays was not counted
- A decline in expenditure is not seen throughout the course of retirement
- Newer retired cohorts are spending more than their previous counterparts
The HILDA data is extensive, and this new report gleans further insights into retiree spending.