How Much Will I Spend In Retirement?

ASFA publishes a standard “budget” that retirees can plan their spending around – for singles and couples and for a modest lifestyle and a comfortable one. The definitions of “modest” and “comfortable” are spelled out in anecdotal detail (bottled wine vs cask wine) where it all adds up to a couple, aged between 65 and 85, who live modestly will need to spend approximately $34,855 a year, while the comfortable lifestyle will cost $59,971. But which city does that retiree live in and where does this data come from?

The best data we can find track spending patterns is from the ABS’s Household Expenditure Survey – the last of which was conducted in 2009/2010. If you are interested in a very detailed study on how people live and spend it is well worth looking through (did you know the average household with a head who was between 35 and 44 years old spends $8.34 a week on bread and $4.91 on cakes?). While it doesn’t specifically break out retired households it gives us a few pieces of the puzzle.

The average household in 2009/2010 spent 1.7x what the average household with the head above 65 spent and 2.1x what the average household which received the bulk of its income from the aged pension received. Of the Living at Home component, Home Utilities and Rates were 11.9% of total expenses for households aged above 65, 13% for pensioners and 8% for all households. But that was in 2009/10. We can use the National Accounts data to get an idea of what spending was like at the end of 2016 based on total expenditure growth by category.

Since 2009/2010 (I’ve used an average of 2 quarters because it doesn’t specify exact dates of the survey), total expenditure has grown by 35% in nominal dollar terms. Of the categories we are focussing on, utilities expenditure has grown by in excess of 62%, healthcare by 54%, alcohol by (only) 25%, while newspapers and books have actually fallen by 7%.

By 2016, Utilities and Rates had become 15% of total expenditure for people on the Old Aged Pension, and nearly 14% for those households over 65 years of age. If we add up “Essential” expenditure, household over 65 have 47% of their spending while pensioners have over 55%.

While we can’t be sure that spending patterns haven’t changed since 2009/2010, the table probably gives a pretty good idea as to how much is being spent and where. Given the current maximum old age pension is about $700 a week for a couple, the pension is short by $5,000 a year for those who rely on it.

Another piece of information hidden away on table 19 of item 65300DO001_20010, is that the average expenditure of a household that comprises a couple where the head is 65 or older was $885 per week, while households of a lone person over 65 was $445 per week – almost exactly double. The implication of this data is that approximately 68% of households where the head is 65 years or older are couples, while 32% are living alone. Under the ASFA data, the number is between 37% and 43% more depending upon lifestyle choice.

While there are some holes in the comparison, the data stacks up like this :

Given the Drifted ABS data is the Average household (so hard to describe as Comfortable), the two anomalies that come from the AFSA analysis are that perhaps their definition of Comfortable is really just average for a couple, but that they overestimate how much a single household costs to run.

Another complication that the ABS data brings out is where you live matters as well. Again, using the 2009/2010 data, combined with the population estimates at 2014, we can see the relative cost for all households to live in capital cities versus the rest of the state.

So, by choosing to live outside of a capital city – at least according to data from 2009/2010 – you can save 17% on average across Australia. By choosing to move from Canberra to rural South Australia you could save over 50%.

One final piece of the puzzle can be understood better by the wonderful invention of crowd sourcing data. Sites like Numbeo and Expatistan can give comparisons across micro locations.

Numbeo, which samples a fairly large collection of items, has solid data for 11 areas in Australia

As a cross reference to the ABS data, it provides good supporting evidence. Living in Newcastle is approximately 86% the cost of living in Sydney – very similar to the ratio derived from the data above.

Expatistan has a slightly smaller sample but a very broad collection of locations. Ballarat, for example is 17% cheaper than Melbourne but this is mostly impacted by the cost of food which is slightly more expensive in Ballarat than Melbourne (logistics costs perhaps?). Housing is 28% cheaper, clothing is 26% cheaper, while public transport is 42% cheaper.

One final caveat to all the data presented is that it is what the average household chooses to spend – not necessarily what they have to spend.

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