Research shows that older Australians are more confident than younger Australians about the economic impact of COVID-19 on their retirement. And they’re generating record levels of retirement savings to create a retirement income. In this article we discuss retirement spending trends and strategies to help you spend with confidence in retirement.

Has COVID-19 changed our spending habits?

Big changes in our day-to-day routines have had a positive effect on our spending habits. Research by McCrindle found that two in five Australians (41%) have managed to save more money than usual in 2020.  

Of course, that doesn’t mean we didn’t spend in lockdown. According to one COVID-19 spending tracker, we spent more money on food delivery, home improvement, office furniture, health services and road tolls. Unsurprisingly, we spent less money on public transport, pubs & venues, gyms/fitness and travel.

Undoubtedly the biggest shift has been in online shopping, with August being a record month for e-commerce according to Australia Post. Six months into the pandemic and online shopping has grown 75% from 2019, and it looks like it’s here to stay. 58% of Australians have said they plan to do the majority of their Christmas shopping online this year to avoid the crowds, and 60% expect to do more of their shopping online even after COVID-19 restrictions ease and things go back to normal. 

Thankfully plenty of good habits have emerged from the pandemic, and early signs show that these are also here to stay:

• ‘Cautious consumption’ – research by McKinsey found that we’re being more mindful about what we buy, and we’re planning ahead more.
• Less is more - we’ve been reminded that spending more money doesn’t necessarily lead to more happiness.
• Enjoying the process - we’ve found satisfaction in learning how to make things, rather than 'buying in'. Cooking at home, for example, is a trend that’s expected to stick around.

Getting into good habits and managing your budget becomes increasingly important in retirement, where you’ll need to make sure you can support your lifestyle over the long term.

Retirees value spending on travel and leisure 

When it comes to spending priorities for retirees, funding travel and social activities are right up there once essential expenses have been covered. In fact, travel will become a focus for many once our borders open. Australians who saved more than usual during 2020 are planning to spend their extra savings on travel. According to McCrindle, the most popular immediate destination will be interstate (21%), followed by international travel when the borders reopen (19%) and to regional Australia (18%).

International jetsetters who would usually be heading overseas will instead explore their own state and territory. Almost two in five Australians are expected to follow in the footsteps of the grey nomads and travel within their own state and territory within the next two months, helping to rejuvenate regional communities affected by drought, bushfires and COVID-19. 

While most of us would rather spend money on travel than bills, making sure your expenses are covered before you spend on discretionary items is the key to managing your spending in retirement.

Will you spend more or less as you age?

Australian retirees certainly punch well above their weight when it comes to spending power. According to research by National Seniors Australia, retiree spending, and willingness to spend is crucial to our economy. But how do you get the saving vs spending balance right? Understanding the spending patterns in retirement certainly helps.

As you age, your lifestyle and spending patterns will change. It’s common to expect your spending to reduce in retirement. Whilst that’s true to some extent – spending on discretionary items does reduce over time - spending on the everyday essentials remains the same, as costs such as healthcare increase with age. So, whilst older retirees typically spend less than younger retirees, it’s important to remember that your needs will change, and you may have expenses that you didn’t expect.

Filling the Age Pension ‘gap’

If you’re under the assumption that you’ll always have the Age Pension to fall back on to cover your essential expenses in retirement, it’s worth knowing that even the maximum Age Pension payment doesn’t cover a modest retirement lifestyle, according to the ASFA Retirement Standard:

	ASFA’s modest retirement standards*	Maximum Age Pension rate (annual) **	Income shortfall
Singles	$27,987	$24,551.80	$3,435 p.a.
Couples	$40,440	$37,013.60	$3,426 p.a.

* Based on ASFA’s September 2020 retirement standards for those around age 65.
** Maximum Age Pension rates as at 20 September 2020.

One of the best investments you can make for your retirement is to take the time to understand what other income options you have if one day your retirement savings run out.

Research we conducted with National Seniors Australia shows that feeling financially comfortable in retirement isn’t necessarily about the level of savings or investments you have. A smart retirement income plan supports your spending needs as they change over time. 

One approach that generally works well in retirement, is income layering – a strategy that combines (or layers) several sources of income to make sure your everyday essentials are covered, while you have enough money invested to help grow your savings. Doing this gives you an extra layer of protection in retirement, and the peace of mind that you always have a safety net to help with your essential living costs should your retirement savings run out.

A comprehensive retirement income plan typically includes the following sources of income:

• Income from your super or money in the bank
• Income from the Age Pension (if you’re eligible)
• Income from a lifetime income stream (such as a lifetime annuity)

Find out more about lifetime annuities here or use our Retire with confidence tool to learn how a comprehensive retirement income plan can support a positive outlook in retirement.

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