Big data reveals the suburbs where Australia’s wealthiest and poorest retirees live

From

Milliman Retirement releases the Expectations and Spending Profiles (ESP) report.

The Melbourne area of Stonnington is home to Australia’s biggest spending retirees, according to the latest Milliman Retirement Expectations and Spending Profiles (ESP) report.

The average annual expenditure of Stonnington retiree households is $56,711, which is two-thirds higher than the national average ($33,943), with more expenditure directed towards discretionary areas such as leisure.

The area (defined in the last Census analysis as “Stonnington – West”) includes the traditionally wealthy enclaves of Armadale, Prahran, Windsor, South Yarra – East, and Toorak.

Meanwhile, the Caboolture region in Queensland (including Burpengary – East, Caboolture, Caboolture – South, Elimbah, Morayfield – East, and Wamuran) is home to Australia’s lowest spending retirees.

Average retired households there spent just $26,286 a year: 23% less than the average across Australia, but with a far greater proportion of expenditure on essential goods and services.

The Milliman ESP analysis, which is based on bank account transaction data gathered anonymously from more than 300,000 retirees across Australia, shows the significance of location on the cost of living in retirement.

This data, which can also reveal the expenditure of retirees in every region and suburb, is crucial for financial services businesses wanting to provide effective general and personal advice, design new investment products, persuade clients to make good decisions, and increase the level of client engagement.

The average annual expenditure of retirees in Caboolture could be entirely funded by the full Age Pension.

However, the super balance required to sustain average spending through retirement for a couple in Stonnington (with 75% certainty if invested in a ‘balanced’ investment option) would be over $403,000.

This is still significantly lower than many industry forecasts. One reason is the interaction of the Age Pension, which effectively provides an inflation-indexed, government-guaranteed lifetime annuity backstop. Regardless, some retirees will prefer to have a higher degree of certainty, which requires a significantly higher super balance.

The Milliman Retirement ESP’s region and suburb analysis shows how varied the retirement position of members can be. Small changes in annual spending can result in significantly different levels of savings required to last through retirement.

The bulk of super fund members don’t receive personal advice, leaving funds to make assumptions based on surveys, Census snapshots, and industry recommendations, often resulting in a ‘one size fits all’ super saving recommendation.

This can potentially make retirees in wealthier suburbs complacent while those in poorer suburbs are likely to become disengaged, given they will never meet the industry’s general advice on super saving targets.

But even modest differences in savings can translate to a hugely positive impact on members’ actual retirement lifestyles. The Milliman Retirement ESP can help point the way to helping members and investors make practical changes.

For example, the proportion of expenditure aimed at essential goods and services is significantly higher for Caboolture retirees (60%) compared to Stonnington retirees (44%). Drilling down further into the data, Caboolture retirees spend almost twice as much of their total expenditure on food (19% versus 10%) but half as much on leisure (8% versus 16%).

Funds can interpret this data in various ways (the Milliman Retirement ESP also shows 10 other expenditure categories).

Funds and retirees in wealthier areas have numerous choices given the flexibility of their expenditure – but similarly, the data is just as important to the way funds engage with retirees who are less wealthy.

Non-discretionary costs (such as food, electricity and gas) rising at a greater pace than inflation will have a significantly greater impact on retirees in poorer areas than more affluent areas. However, many funds still rank their returns against CPI, which includes the cost of discretionary goods.

Using CPI as a benchmark means falling prices of discretionary goods and services (such as technology and travel) can distort the true impact of non-discretionary costs. Australia’s inflation rate remains less than 2%, while expenditure patterns amongst super fund members vary substantially. These spending patterns are also affected by a wide range of other big data points which are analysed by the comprehensive reporting included in the Milliman Retirement ESP.

You must be logged in to post or view comments.