Q: I have seen criticism recently of the Association of Superannuation Funds of Australia’s estimates for what retirees will need to live on in retirement. Are the ASFA figures reliable and what other data is available?
A: According to ASFA’s latest report on the cost of living in retirement, for people aged around 65, a single person would need income of $24,250 a year for a “modest” lifestyle and $43,665 for a “comfortable” lifestyle.
A couple would need $34,855 for a modest lifestyle and $59,971 for a comfortable lifestyle. The figures are after tax and assume that retirees own their own home.
ASFA’s calculations have been subject to some criticism recently, with Grattan Institute chief executive John Daley writing that the association’s measure of a comfortable retirement would support an affluent lifestyle more luxurious than most Australians experience during their working lives.
Turning to another source, the latest report of the Household Income and Labour Dynamics in Australia Survey (HILDA), which has been run by the Melbourne Institute since 2001, asked people over age 45 about their expectations for the after-tax income they will require in retirement in order to have a standard of living which they regard as satisfactory.
In the most recent survey the mean was $43,128 for single people and $62,340 for couples. The median was $39,072 for singles and $52,096 for couples.
However, there is considerable variation. Among single people the 10th percentile (which has 10 per cent of reported values below it and 90 per cent above it) was only $20,838, while the 90th percentile was $60,111.
Among partnered people, the 10th percentile was $30,055, while the 90th per centile was $100,185.
For both singles and couples, the median required income is below median household income in 2015 (when the survey was done).
It seems that most people do not have unreasonably high expectations of their income requirements in retirement, or that ASFA’s estimates (which are comparable) are excessive.
HILDA pointed out a number of factors that impact on an individual’s assessment of their income needs.
People aged 45 to 49 had the highest expected income requirements, while people aged 60 to 64 (who are not yet retired) had the lowest expected requirements – on average $11,800 less per year than people aged 45 to 49.
Current income is also an important factor. In moving from the bottom of the income distribution curve to the top, income requirements increase by $34,600 a year.
People living in major urban areas have the highest income requirements.
There was no significant difference between men and women in expected income requirements.