Spending Confidence

One of life’s biggest mysteries is knowing how much we can afford to spend day-to-day in retirement. It’s hard because there’s just so much we don’t know.

We don’t know how long we are going to live, so we don’t know how long our money needs to last.  We don’t know what emergencies and life challenges will crop up from time to time and require money.

We don’t even know what return our investments will provide.

Don’t ask Big Super

The super funds have been singing from the same hymn sheet for nearly 20 years.  Their Retirement Standard hymn sheet.

According to the Association of Superannuation Funds of Australia (ASFA), couples need to spend a minimum of $64,771 each year to be ‘comfortable’ in retirement.  And that figure is indexed quarterly to the inflation rate.

It’s a big figure. It’s a precise figure.  It’s a figure designed to encourage people to stack more money into their super accounts.

But it’s wrong.

Human beings adapt to their circumstances

It’s wrong because it’s overly simplistic.  We don’t spend the same amount week on week, or year on year at any stage in our lives.  Our expenditure is volatile; in some months we have a major expenditure and in others, we don’t. 

Assuming our expenditure will go up with inflation is also wrong.  Retirees don’t buy the same things over and over. 

Looking for clues

We think it’s more helpful to learn from the experience of people who are already retired. One way we can do that is to look at the expenditure of households using Big Data.

According to an American study that analysed the expenditure of 5 million households, there is a retirement spending surge around the retirement event as people prepare for a new phase of life.  

Spending significantly increases in the run up to retirement and peaks in the month of retirement. But spending slowly reduces from then on.  According to the actuarial firm Milliman, retired couples’ expenditure falls by more than one-third as they move from the peak spending years in early retirement into older age. The decline in expenditure is steady in the early years of retirement but then rapidly accelerates as retirees pass 80 years of age. 

Keep some powder dry

Not everyone goes into aged care accommodation, but one in five Australians over 80 does.  Those who aren’t often engage homecare services, which can also be expensive. 

Quality care costs money, so we recommend keeping a portion of your assets available for the elder years.  Having access to, say, one quarter of your initial superannuation nest egg in old age can make a real difference.

Spending confidence

 At Daniel Crump Financial Planning, we can help make sure you’re on track with your expenditure.

 We’ll give you the confidence to spend money today, with peace of mind that you’re still being responsible for the future.

Daniel Crump is the founder of Daniel Crump Financial Planning.  This article is general and does not consider your personal circumstances so it may not be appropriate to you.  If you would like advice specific to you, please give us a call.