Is a comfortable retirement now a pipe dream?

Those of us who are still working dream of a comfortable retirement. It might not come as early as we’d originally planned but it’s still coming – isn’t it? Well … maybe not. A growing number of indicators are suggesting that a comfortable retirement may remain just that – the stuff of dreams.

Why is that? The unpleasant outlook is a confluence of many factors, none of which point towards a comfortable retirement.

First, there’s the matter of the ‘price of retirement’, constantly being pushed up by rising living expenses. Second in line is the state of rent mortgages in Australia.

Third is our old favourite, inflation. Yes, the aforementioned rising living expenses and inflation are linked, but the context here is the uncertainty surrounding inflation, and what it might do next.

Living expenses and the comfortable retirement price tag

Like many other countries, Australia has had to come to terms with a sharp rise in living expenses recently. Sharp relative to the previous decade, at least. That has an impact not only on our current lives, but our future too.

In fact, estimates from the Association of Superannuation Funds of Australia (ASFA) show a 0.7 per cent jump in the cost of retirement in the March quarter alone. According to the ASFA, that cost is now $72,663 per year for couples, and $51,630 per year for singles. These are record numbers, the sort of figures that are pushing the words ‘comfortable’ and ‘retirement’ ever further apart.

Mary Delahunty, the ASFA’s CEO, says those who have already retired, as well as those preparing, are feeling the pinch. “Retirees continue to feel considerable cost of living pressure on their household budgets,” she said. 

Among the categories adding to the pressure are medical and hospital services, insurance and food. Medical and hospital expenses jumped by 2.3 per cent in the March quarter. Insurance cost increases were even larger – 3.7 per cent for the quarter taking the yearly increase to a massive 16.7 per cent.

Food prices, while still rising, are at least doing so at a slightly slower rate. They rose by 3.8 per cent in the 12 months to March, down from 4.5 per cent in the year to December. 

Mortgages and rent

When I began my working life (admittedly a long time ago), paying off your mortgage before retirement was a given. No longer. According to a new Vanguard Australia report, 10 per cent of retirees are still paying off their mortgages.

Add to that the 20 per cent of Aussie retirees who are renting, and you have nearly a third of retirees in our country still paying a regular cost for the place they call home. 

The general expectation is that such numbers will continue to rise. The report showed 32 per cent of working-age Gen X respondents believed they’d likely still have a mortgage in retirement.

For Gen Z respondents, the figure was higher still, at 45 per cent expecting to still have a mortgage in retirement.

Inflation uncertainty = comfortable retirement uncertainty

Perhaps worse than knowing you won’t have a comfortable retirement is not knowing if you will have one. And in the current financial climate, it is proving to be a difficult thing to calculate – even for the experts.

As First Link’s Michael O’Neill recently pointed out, both inflation and interest rate predictions keep changing. When inflation spiked in 2021, most economists predicted the rises would be short-lived. Wrong. As for interest rates, remember when then RBA governor Philip Lowe said in 2021 that rates wouldn’t change until 2024? Oops.

What can we do?

The uncertainty surrounding inflation and interest rates seems likely to be around for a while yet. In such circumstances, one thing we can do is plan for both best and worst case scenarios. Michael O’Neill likens it to packing for a holiday. If you’re heading to a location known for variable weather, you’ll pack clothes for both warm and cool conditions. 

As for retirement with rising prices and rental or mortgage payments, Ms Delahunty and Vanguard’s Daniel Shrimski share a view. Both agree that a strong super system combined with proper advice are key. It was “important that a robust superannuation balance is part of a ‘whole-of-wealth’ retirement plan,” Mr Shrimski said.

That may not guarantee a comfortable retirement, but it will give you your best shot at one.

Have the events of recent years dented your confidence in having a comfortable retirement? Have you changed your plans to accommodate this? Let us know via the comments section below.

Also read: ‘Rethink Retirement’ report exposes Aussies

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