Retirement specialist Milliman has released new research suggesting falling retirement spending is the result of behavioural factors rather than declining incomes.
The analysis indicated retirees’ age is just as strong an indicator of spending behaviour as income levels, putting into question common benchmarks, such as using a percentage of final salary as a retirement savings target, that do not sufficiently allow for lifestyle changes.
The “Milliman Retirement Expectations and Spending Profiles” research showed the median retired couple’s expenditure falls by more than one-third (36.7 per cent) as they move from early retirement (age 65 to 69) into older age (85 and beyond).
However, the analysis, which includes the latest census income data, found poor, middle-income and high-income retirees all show similar declines in expenditure throughout retirement.
Data on low-income retirees (annual income below $33,800), middle-income earners (annual income between $33,800 and $91,000) and high-income earners (annual income above $91,000) showed while wealthier retirees spend more in absolute terms, all three groups are saving money in retirement.
While expenditure exceeds income for low-income earners when they are between 55 and 64, this situation quickly tapers off into older age.
The analysis, which tracks the expenditure of more than 300,000 older Australians, showed the average proportion of income spent on housing, food, energy, leisure, goods and services, travel and insurance either declines slightly or remains the same, regardless of income levels, through retirement. Only healthcare expenditure increases.
“This data and the trends it reveals have important implications for super funds attempting to meet the needs of their members,” Milliman said.
“It should feed into communication strategies, general and personal advice and product design. In this way funds can meet the actual lifestyle needs of their members.”
