The Association of Superannuation Funds of Australia (ASFA) has just released new data regarding indicative costs in retirement relating to the period ending 31st of March 2013. The media release suggests that health and energy costs rose over the March quarter whilst food and leisure goods and services fell.
I believe the information provided by ASFA can be useful in 2 key ways:
- assisting clients to determine what their budget should be when reaching retirement
- providing a gauge of inflation for those preparing for or in retirement
The study includes indicative budgets for 4 groups as follows:
A single person with a modest lifestyle $22,641
A single person with a comfortable lifestyle $41,169
A couple with a modest lifestyle $32,603
A couple with a comfortable lifestyle $56,317
When using the breakdown of budgets provided care should be taken in seeing whether they fit your requirements.
In terms of inflation the latest data suggests there has been only slight changes with the two comfortable lifestyle budgets actually falling slightly. However the annual change was between 2.16% and 3.17% due to a large jump in costs in the September quarter of 2012.
This inflation data can be really useful for assisting with determining what level of total return will be required to meet the goal of making sure assets last long enough through retirement years.
Using this data you can add a required drawdown rate - say 5% - and add the level of fees you are paying - say 1.25% - to work out what you need your portfolio to be generating in total returns - 9.25% using the example data.
This can then be a really useful starting point to see what style of portfolio you require to reach that total return target. In particular how much risk needs to be incorporated into a portfolio. In particular, if you are targetting a 9.25% total return, you should be considering what style of portfolio has provided that return through history with the least amount of volatility (risk).
For anyone contemplating or in retirement taking a look at the ASFA Retirement Standard data could be a really valuable use of time and a great starting point for retirement planning.