Budgeting for retirement: four costs to consider when planning your next chapter
When planning for retirement, you likely have images in mind of the type of lifestyle you’re striving for. To help you achieve and maintain this lifestyle after you’ve hung up your working hat, it’s important to understand your likely expenses and how long you may need to sustain these costs.
To work towards budgeting for a more comfortable retirement, it can be important to dig a little deeper into some common expenses you may face, including housing, healthcare, travel and transport. Below, we highlight some of the ins and outs of these common costs, as well as some aspects you may not have considered.
#1. Housing: Owning your home could lead to substantial savings in retirement
According to the Grattan Institute, retirees who have paid off their mortgage spend much less of their income on housing (on average 5%) than retired renters (25% to 30%).1 These costs are worth more than $23,000 a year to the average household aged 65 or over. However, the Institute also predicts that based on current trends, the percentage of over 65s who own their own home will drop from 76% today to just 57% by 2056.
While owning your own home may help you save each year in retirement, it’s important to keep in mind how much it will cost to keep it properly maintained. Depending on your physical wellbeing, there could be a time where you decide to pay for help with the housework, gardening and repairs, rather than doing these tasks yourself. If this is the case, it could be a good idea to factor these costs into your budget, or if necessary, consider a plan to downsize to a more manageable and cost-effective home.
#2. Healthcare: keeping your finger on the pulse of potential expenses
While our population’s life expectancy has increased in recent decades, statistically we are still more prone to experience ill health as we age,. This means that the cost of healthcare during retirement is a common expense that shouldn’t be ignored.
On the positive side, Canstar’s research team found private health insurance premiums for hospital-only policies generally decrease with age when you factor in the government’s higher health insurance rebates for over 65s. For example, as per the tables below, an average couple under 65 with a Bronze hospital-only policy would pay approximately $2,138 annually, based on policies in Canstar’s database. Meanwhile, a couple aged 70+ with a Bronze hospital-only policy would pay $1,899, which is a difference of $239.
Annual Hospital Premiums – Under 65s |
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| Hospital Tier | Single | Couple |
| Bronze | $1,069 | $2,138 |
| Bronze Plus | $1,186 | $2,371 |
| Silver | $1,371 | $2,742 |
| Silver Plus | $1,729 | $3,456 |
| Gold | $2,046 | $4,087 |
| Source: www.canstar.com.au. Premium figures shown are averages from Canstar’s database as at 14 June 2019. Calculations include the Australian Government Private Health Insurance Rebate, Base Tier (income of less than $90,000 for singles and $180,000 for couples) for under 65s, of 25.059%. | ||
Annual Hospital Premiums – Aged 65 to 69 |
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| Hospital Tier | Single | Couple |
| Bronze | $1,009 | $2,019 |
| Bronze Plus | $1,120 | $2,239 |
| Silver | $1,295 | $2,590 |
| Silver Plus | $1,633 | $3,263 |
| Gold | $1,932 | $3,859 |
| Source: www.canstar.com.au. Premium figures shown are averages from Canstar’s database as at 14 June 2019. Calculations include the Australian Government Private Health Insurance Rebate, Base Tier (income of less than $90,000 for singles and $180,000 for couples) for 65 to 69-year-olds, of 29.236%. | ||
Annual Hospital Premiums – Aged 70+ |
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| Hospital Tier | Single | Couple |
| Bronze | $950 | $1,899 |
| Bronze Plus | $1,053 | $2,107 |
| Silver | $1,218 | $2,437 |
| Silver Plus | $1,537 | $3,071 |
| Gold | $1,818 | $3,632 |
| Source: www.canstar.com.au. Premium figures shown are averages from Canstar’s database as at 14 June 2019. Calculations include the Australian Government Private Health Insurance Rebate, Base Tier (income of less than $90,000 for singles and $180,000 for couples) for those aged 70 and over, of 33.413%. | ||
However, it’s important to note that while the health insurance rebate may assist you in cutting down your premiums as a retiree, the amount you pay could also depend on what level of cover you choose. For example, as you age, you may choose a more comprehensive hospital policy (such as Silver Plus or Gold) to assist with any increased health concerns you may have and, as such, you could be required to pay more for that cover. You may also decide whether you would prefer to have extras cover for additional services such as physiotherapy and dentistry, which would increase premiums.
Planning for this, along with the potential for a greater need to claim and therefore pay an excess as well as prescription medications and therapeutic treatments, can be an important consideration. Keep in mind there are some Medicare benefits for holders of pensioner concession cards that may assist you with some of your health costs.
#3. Travel: Could your travel costs soar sky-high?
Many retirees aspire to travel; however, it’s one of the easiest retirement costs to underestimate, with numerous opportunities to overspend. One cost that is often overlooked is travel insurance. Travel insurance for seniors is generally more expensive than cover for younger travellers. This may be down to factors like the perceived higher risk and different medical needs associated with the senior population. The cost of a policy is likely to vary from one provider to another, however, so it’s generally a good idea to shop around before deciding on cover that suits your needs.
Additionally, if you plan to take a cruise, this will typically require a higher level of cover, which is an additional expense. When looking at travel options, it could be beneficial to research any deals or discounts that may be available and consider going in off-peak seasons if it suits you.
#4. Transport: Ageing vehicles vs discounted public transport
If you own a car, you will need to factor in the costs of running it, including petrol and servicing costs, as well as the annual fees of registration and insurance. A recent Canstar Research analysis of comprehensive car insurance policies on the Canstar database revealed premiums were cheaper on average for over-50s than for those aged between 30 and 49. As per the table below, those aged 50–70 could save more than $100 compared to their younger counterparts across all states. Holders of pensioner concession cards may also be eligible for free or discounted vehicle registration renewal, so check with your state transport authority to confirm what’s on offer.
As your car ages, the costs to maintain it could also increase, so it may be worth weighing up whether budgeting for a new vehicle in retirement could help save you in the long run, or look at public transport options in your area and consider whether you could do without a car altogether. Senior card and pensioner concession card holders are typically eligible for discounted fares on public transport.
Annual Car Insurance Premiums |
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| Age Group | NSW | VIC | QLD | SA | WA | TAS |
| 30-49 | $1,016 | $1,044 | $735 | $778 | $747 | $726 |
| 50-70 | $848 | $862 | $620 | $653 | $626 | $610 |
| Difference | $168 | $182 | $115 | $125 | $121 | $116 |
| Source: www.canstar.com.au. Based on quotes obtained for comprehensive policies in Canstar’s Car Insurance Star Ratings, May 2019. | ||||||
Careful planning for a comfortable retirement
Careful planning and a clear understanding of your likely expenses, can play an important part in ensuring a comfortable lifestyle in retirement. In addition, there are many opportunities to potentially save money, such as through taking advantage of the entitlements, insurance rebates and government benefits that can come with pensioner concession cards.
Whatever your goals for retirement happen to be, being financially ready for the road ahead can go a long way in helping you enjoy life to the fullest in your later years.
About Mitch Watson
Mitch Watson is Group Manager of Research and Ratings at Canstar. He has been working in finance research for over 10 years. Over this time, he has developed a deep understanding of financial products and what consumers and businesses need to be looking for to get ahead.
About Canstar
This article has been provided for NobleOak’s website by a third party contributor. It is for general information only (and is not financial or health advice tailored to any reader’s circumstances). NobleOak is not responsible for content on any linked sites.