The cost of living crisis is now so bad that Australians need even more money to retire comfortably.
The 32-year high inflation of 7.8 percent mainly affects single people and widowers, because they can’t easily pool their money to pay bills and do groceries.
The Association of Superannuation Funds of Australia (ASFA) now recommends that a single person save $595,000 in super to retire comfortably, up 9.2 per cent from a previous recommendation of $545,000.
For couples, the recommended retirement balance is $690,000, up 7.8 percent in line with inflation from $640,000.
ASFA, the main advocacy group for the Australian pension sector, bases its recommendations on those who have already paid off their mortgages and would qualify for the old age pension.
While retirees are less likely to be affected by rising mortgage rates, more expensive food, gas and electricity prices are impacting those on fixed incomes.
The Association of Superannuation Funds of Australia now recommends that a single person save $595,000 in super to retire comfortably, up 9.2 per cent from a previous recommendation of $545,000. For couples, the recommended retirement balance is $690,000, up 7.8 percent in line with inflation from $640,000
ASFA chief executive Martin Fahy said this means those who retire at 67 and receive the old-age pension will need to save more to live to 92.
“Unfortunately, Australians are still facing sharp price increases for essential goods and services,” he said.
Single retirees now need $49,462 a year to live on, compared to $69,691 for couples in their mid-60s.
ASFA calculated that the cost of living would increase by 7.5 percent after retirement by 2022, based on an analysis of data from the Australian Bureau of Statistics consumer price index, also known as the basket of goods.
Food prices rose by 9.2 percent, but a closer look revealed that bread rose by 13.4 percent, milk rose by 17.9 percent, meat and seafood by 8.2 percent as cooking oil rose by 20.8 percent.
Vacations were the most expensive expense, with domestic travel and accommodation costs rising 19.8 percent, a level more severe than the 11.7 percent rise in electricity bills and the 17.4 percent increase in gas bills.
Social Security benefits are indexed for inflation twice a year, on March 20 and September 20.
While pensioners are less likely to be hit by rising mortgage rates, more expensive food, petrol and electricity prices are affecting those on fixed incomes (pictured is a Woolworths supermarket in Sydney’s eastern suburbs)
The old-age pension was increased by 3.7 percent on Monday due to the six-month increase in the consumer price index in the September and December quarters of 2022.
This increased the biweekly pension for singles by $37.50 to $1,064, while the amount for couples increased by $56.40 to $1,604, with both amounts including the pension and energy supplements.
The mandatory pension guarantee will increase from 10.5 percent to 11 percent on 1 July 2023.
Australians can continue to deposit up to $27,500 a year into their super and pay a favorable 15 percent tax rate.
Starting July 1, 2025, that tax rate will double to 30 percent for those with more than $3 million in super savings, in an effort to save the budget $2 billion a year.
Pensioners living off their savings are more likely to benefit from higher interest rates, as the Reserve Bank of Australia (Governor Philip Lowe, pictured) has raised cash rates 10 times since May 2022. But minutes from the March meeting have suggested the RBA could pause in April, considering the effect higher interest rates would have on the economy
Pensioners living off their savings are more likely to benefit from higher interest rates, as the Reserve Bank of Australia has raised cash rates 10 times since May 2022.
But minutes from the March meeting have suggested that the RBA could pause in April, considering the effect higher interest rates would have on the economy.
“Members agreed to reconsider the matter for a break at the next meeting, recognizing that a break would allow additional time to reassess the outlook for the economy,” they said.
Since the last RBA meeting, US Silicon Valley Bank, Signature Bank and Silvergate Bank have collapsed, while stricken Credit Suisse is being bought by its Swiss banking rival UBS.
The minutes of the RBA showed that it was concerned about unprecedented international developments that could affect financial stability.
“They agreed that forthcoming releases on employment, inflation, retail sales and corporate surveys would provide important additional information as well as developments in the global economy,” it said.