Rent, healthcare and insurance price rises put additional pressure on less affluent retirees’ budgets

First, the good news. Inflation is continuing to fall. After peaking at 7.8 per cent at the end of 2022, the rate of growth has dropped every quarter since and now sits at 3.6 per cent. 

The less good news? The main drivers of inflation for the first Retirement Affordability Index figures of 2024 are all essentials for retirees: health, insurance, housing and food.

This cuts across all our retirement tribes: the affluent singles and couples who own their own home and have a private income, the more constrained couples and single homeowners who rely on the Age Pension, and the cash-strapped couples and singles, who rent and receive the Age Pension.

Some of these increased costs are more predictable than others. With the resetting of the Medicare Safety Net on 1 January, many retirees faced an increase in the price of medical and hospital services (up 2.3 per cent) and Pharmaceutical products (up 7.1 per cent). This occurs in every March quarter.

And it’s no surprise to see insurance becoming a bigger pull on retirees’ budgets. Premiums for motor, house, and contents insurance continued to rise (up 3.7 per cent). This is being driven by the increase in natural disasters linked to climate change. Insurance has risen 16.4 per cent over the past 12 months. This is one area of inflation that is likely to continue for some time.

There is some positive news for retirees. Electricity prices fell 1.7 per cent in the March quarter and have only increased 2.0 per cent over the past 12 months. This is in large part due to the energy bill relief rebates handed out by federal and state governments. 

For those who like to travel, international holiday travel and accommodation fell 5.9 per cent, while clothing and footwear fell 1.1 per cent.

Older renters hit hard in the hip pocket

So, when we break down our tribes, what’s causing the biggest budget pressure and how does this impact retirement affordability?

Perhaps unsurprisingly, the tribes most impacted by the inflation figures were the Cash Strapped Singles (renters on the Age Pension). Their annual cost of living has increased by 4.1 per cent, far above the 3.6 per cent headline figure. Cash Strapped Couples (renters on the Age Pension) also saw their cost of living increase by 3.9 per cent.

This was overwhelmingly driven by increases in rents, which made up about half of their cost-of-living increase, and is unsurprising when you consider rent has risen 7.8 per cent in the past 12 months. This is the highest growth in rents for 15 years. Worryingly, after a small slowdown last quarter, rental costs have started to accelerate again.

Food was the next biggest cost-of-living increase for the cash-trapped tribes as retirees who rent have smaller incomes after the cost of housing, and spend a larger proportion of their incomes on essentials like food. 

With the average rate of inflation for all people now 3.6 per cent, both our cash-strapped tribes now face a higher inflation rate for food than the national average, especially when it comes to fruit and veg (up 2.5 per cent). If there’s a silver lining, it’s that meat and seafood have declined in cost by 0.7 per cent in the first half of the year.

Constrained pensioners on par with the rest of Australia

As for the singles and couples who own their own home but still rely on the Age Pension, their rate of inflation is largely on pace with the average Australian household increase of 3.6 per cent. That won’t offer much comfort for singles, with a 3.4 per cent cost-of-living increase, and couples who have seen a 3.3 per cent increase.

The main drivers of higher costs for these tribes were the increases in healthcare costs, although insurance price rises have also played their part.

Finally, affluent singles and couples saw the smallest increase, with affluent singles seeing a cost-of-living increase of 3.1 per cent for the year and affluent couples seeing an increase of 3.0 per cent. 

Like constrained tribes, this was mainly driven by increases in health and insurance. But affluent tribes did see a small offset to their cost-of-living increase because of a small fall in recreation, driven by falling international holiday travel and accommodation prices. Affluent tribes continue to enjoy a lower rate of inflation than the national average.

So, what’s the diagnosis for the future? The inflation rate is expected to continue to fall as the economy slows and the supply shocks that set off this wave of inflation subside, but the pressure on older Australians’ cost of living, particularly renters, may not go away anytime soon.

Does this quarter’s Retirement Affordability Index match what you’re seeing in your household budget? Let us know in the comments.

Also read: We’re living longer, so is the 4% rule a safe guide to retirement spending