Retirees have experienced the highest annual increase in living costs since 2010, in a development which has highlighted the potential benefits of releasing home equity through downsizing.

“Australian retirees are now facing significant pressure on their budgets, given a range of unavoidable price hikes including petrol and council rates,” said Association of Superannuation Funds Australia (ASFA) Deputy CEO Glen McCrea.

“It’s critical that future retirees are able to build sufficient retirement savings to ensure they can have dignity, health, vitality and connection in retirement.”

ASFA's September quarter 2021 figures show that, for couples aged around 65 to live a comfortable retirement, they will need to spend $63,799 per year.

This is up 0.9 per cent on the previous quarter, due to living cost increases.

Singles now need to spend $45,239 per year, up 1.0 per cent on the previous quarter.

In March 2021, a report by Downsizing.com.au found that Australia’s booming housing market has made downsizing an increasingly lucrative tactic to help over 50s secure their financial future in retirement.

The report shows that the average cash released from selling to downsize from a house to a retirement village in 2020 was $286,810. This compares to a cash release of $211,550 in 2015.

ASFA says recent cost increases include:

  • Automotive fuel prices reached a record level in the September 2021 quarter, leaping 7.1 per cent due to higher global oil prices amid economic recovery and supply disruptions.

  • Property rates rose 3.3 per cent, which is the largest rise since 2016. Many councils increased rates after implementing smaller rises, rebates or rate freezes last year.

  • Restaurant meals (up 1.6 per cent) and takeaway and fast foods (up 1.3 per cent) both rose primarily due to reduced uptake of the NSW 'Dine & Discover' and City of Melbourne 'Melbourne Money' voucher schemes compared to the June 2021 quarter. These vouchers reduced the out-of-pocket costs for consumers, hence fewer vouchers being redeemed resulted in a price rise in the September quarter.

  • Furniture (up 3.8 per cent) rose due to supply shortages and elevated demand from households.

  • Motor vehicles rose 1.4 per cent due to continued strength in demand combined with supply constraints such as the global semi-conductor shortage, COVID-related factory closures and shipping costs.

  • Audio, visual and computing equipment prices rose 1.8 per cent in the quarter. Prices increased for goods such as TVs and computers as supply disruptions, due in part to the global semi-conductor chip shortage, were combined with elevated demand from households.

  • Over the past twelve months there was a strong increase in the costs of domestic holiday travel and accommodation (+3.8 per cent).

Comment from our CEO

Downsizing.com.au CEO Amanda Graham said the rising cost of living pressures combined with low interest rates and a booming housing market, meant it was likely more people approaching retirement would be considering downsizing their home - to pay down any remaining mortgage, release equity as cash, and help fund their retirement lifestyle.

“This economic environment presents a particular challenge for self-funded retirees, who are seeing significantly reduced investment returns and won’t have the benefit of seeing their retirement income increase in line with their expenses,” Ms Graham said.

“COVID has caused a major shift in economic conditions, particularly for mature workers who are at greater risk of facing unemployment or redundancy.” 

“For many people, the best solution is to downsize their home, to cash in their equity, reduce debt, and move to a location and style of housing which better suits their lifestyle, needs and aspirations for this new stage in their life.” 

“This doesn’t have to mean downgrading to a smaller, cheaper home in the same suburb - without the need to commute to work and schools any longer, they may get a lot more for their money in a different location, and a newer, more modern, lower maintenance property may suit them much better. Some may want to live by the beach, others may prefer a small acreage out of the city.” 

“This presents an opportunity to finally live a dream lifestyle as a well deserved reward for all those years of hard work.”