Australian retirees now need a record amount to fund a comfortable lifestyle in retirement, as the higher cost of food, energy and other essentials squeeze household budgets.

Retiring couples need more than $70,000 a year for a comfortable retirement and singles require $50,000, according to the latest calculations by the Association of Superannuation Funds of Australia.

The expenditure required for a comfortable retirement has jumped by 7.7% in the 12 months to the March quarter, surpassing the 7% annual rise in the consumer price index.

"Retiree budgets have been under substantial pressure for over 18 months due to the higher cost of essential goods and services, namely food, fuel and electricity, with the latter up 15% over the past year," ASFA CEO Dr Martin Fahy says.

Inflation behind record cost of retirement

While CPI inflation slowed in the March quarter, the continued price rises for essential goods and services mean retirees facing ongoing budget pressures.

The ASFA Retirement Standard for the March quarter, released on Friday, shows couples aged 65 to 84 who own their own home outright now need a record $70,482 annually to fund a comfortable lifestyle. The minimum cost for singles is $50,004.

The annual expenditure needed for a comfortable retirement has risen another 1.1% in the March quarter, although the pace of growth has slowed from 2.5% in the December quarter.

ASFA's detailed budget breakdowns show a record 26.2% jump in gas prices over the past year and 15.5% increase for electricity, while the cost of food and eating out is up 8%.

In the March quarter, the price of pharmaceutical products rose 4.5%, medical and hospital services costs were up 4.2%, insurance costs increased 3.5%, and fruit and vegetable prices rose 2.4%.

ASFA says its comfortable retirement standard allows retirees to maintain a good standard of living in their post-work years. It includes the cost of everyday expenses such as health, communication, clothing and household goods, as well as leisure activities and the occasional restaurant meal.

ASFA also calculates the budget needed for a modest retirement, providing a lifestyle slightly better than the age pension that allows retirees to afford basic health insurance and infrequent leisure and social activities.

The latest calculations put the annual expenditure needed for a modest lifestyle in retirement at $45,808 for couples and $31,785 for singles.

The super balances for a comfortable retirement

According to ASFA, the lump sum needed for a comfortable retirement is now $690,000 for couples and $595,000 for singles.

The superannuation industry peak body lifted its lump sum estimates in March to reflect the high rate of inflation, with ASFA also noting there has been no real increase in the age pension as price growth has been greater than the increase in average wages.

ASFA last lifted the lump sums in August 2015, when the superannuation balance required for a comfortable retirement standard was set at $640,000 for couples and $545,000 for singles.

Its calculations show the savings required for retirement at age 67 and assume that retirees will draw down all their super capital and are receiving a part age pension.

ASFA estimates both couples and singles wanting a modest retirement need a superannuation balance of $100,000 when they retire, as it says the base rate of the age pension is sufficient to meet much of the expenditure at that budget level.

Morningstar's director of product management Mark LaMonica has compiled a step-by-step guide that investors of any age can use to estimate the size of the portfolio they need for their retirement.

"Retirement planning presents a particular challenge as many investors struggle to figure out a dollar amount at retirement that can generate a sustainable annual withdrawal to pay for living expenses," LaMonica says.

He says a good starting point is using your current salary to determine what you need to replicate your current standard of living.

Retirement 'the next frontier' for super industry

AustralianSuper chief investment officer Mark Delaney says the challenge for the industry is to combine the pension management, advice and tailored superannuation that people want heading into and in retirement.

"In many ways retirement's the next big frontier for super," Delaney says, speaking at this week's Morningstar Investment Conference in Sydney.

"There's another million Australians in the next 10 years going into retirement."

AustralianSuper CIO Mark Delaney speaking at the 2023 Morningstar Investment Conference in Sydney. Picture: Morningstar

He says AustralianSuper—which is Australia's largest super fund, with a $280 billion portfolio—already has $36 billion of assets in the retirement pool which will double or treble.

"Those people will want a range of aspects in retirement but typically what they'll want is their pension managed, affordable advice and their super tailored to deliver the total outcome, and the combination of all those is where we think it's going to go.

"You'll need all three legs for most people; they'll need pension, they'll need advice, and they'll need super.

"The challenge for the industry is to put all those legs together rather than having separate legs."