Spend wisely, save more, knock off work really early.
With the prospect of early retirement becoming a real possibility for me, I have turned my mind to what our spending will look like in retirement.
While doing my research I came across some great information on the Association of Superannuation Funds of Australia (ASFA) website. ASFA publish a benchmark called The ASFA retirement standard. The benchmark tracks the annual budget required by Australians to maintain different levels lifestyle in retirement.
The lifestyle levels are called modest and comfortable and are defined as follows:
A modest retirement lifestyle is considered better than the Age Pension, but still only able to afford fairly basic activities.
A comfortable retirement lifestyle enables an older, healthy retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of such things as; household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally international holiday travel.
So according to the ASFA Retirement Standard Calculator, the following levels of spending would apply for a couple living in my home state of Victoria. (Note, these figures assume the retirees own their own home and are relatively healthy.)
Naturally I was curious to see how my comrades in other states fared. These are the comfortable figures.
What - last place? Ah well, at least we have the penguin parade at Phillip Island. As you can see there’s not a lot between them, but Victoria is the most expensive place to live in retirement. Of course common sense tells us that there will be large differences in cost depending on where abouts the the state you live, but I think these figures should give us a good baseline to work from.
Ah, now I can hear you asking - “What happens when we get older? It doesn’t cost much to stay at home watching re-runs of The Golden Girls.”
Of course you’re onto something here. However, the budget only reduces for those with the comfortable lifestyle. For those of us who have chosen modest, expenses actually increase slightly as we age.
|At age 65||$34,090||$58,915|
|At age 85||$34,257||$53,937|
I guess that makes sense because the comfortable lifestyle includes more travel and recreational activities and our participation in such activities would decrease as we age.
For me, I have confirmed that my planned early retirement budget seems quite reasonable in light of the figures above.
However, we all need to keep in mind that these figures are averages. Each of our spending profiles probably fall somewhere between the modest and comfortable lifestyle levels, but there will be some outliers outside that range.
The other thing to consider is unplanned expenses. Whether they are one-off expenses like a knee reconstruction after that bizarre hip hop dance competition incident, or ongoing expenses like when junior arrives home with his wife and two kids and says he needs to stay with you for a while (for reasons which he will explain another time).
That’s it - go forth and budget!