Rising Living Costs: Driving FORO Among Aussie Retirees

Each day, around 700 Australians retire, yet inflation and the growing gap between retirement savings and living costs are creating new challenges. As living costs soar, more retirees are experiencing FORO – Fear of Running Out of money. 

So, what’s shaping retirement in 2025, and how can Australians plan for a secure financial future? 

Retirees Face a Growing Retirement Savings Gap

The numbers don’t lie – the gap between savings and retirement needs is widening. 

• The median superannuation balance at retirement sits at $200,000, but a “comfortable retirement” requires $595,000 (Association of Superannuation Funds of Australia). 

• While experts predict the median balance will grow to $500,000 within a decade, inflation raises an important question: What will $500,000 actually buy in 10 years? 

Most retirees can’t rely solely on the age pension either. Only 10% believe the pension covers essential costs, with most needing an extra $10,000 annually to meet basic needs. 

These financial pressures are compounded by Australia’s aging population. By 2037, those over 65 will outnumber young Australians aged 0-19, driving up demand (and costs) for housing, healthcare, and aged care. 

Sadly, many retirees are underspending out of fear, depriving themselves of a lifestyle they’ve worked hard for. In fact, it has been reported, that retirees underspend by $13 billion annually – money that could be improving their quality of life. 

Economic Uncertainty Is Here to Stay

Economic uncertainty – both globally and domestically – will continue to shape the retirement experience in 2025. 

Globally: Economic policies, such as potential tariffs on China, could impact Australia’s trade and government revenue. With 7% of our GDP tied to China, even a 2% slowdown in Chinese growth could hit retirees’ investments. 

Domestically: Inflation has already reduced the purchasing power of retirees’ savings. With the cost of living rising, cash savings in low-interest accounts are struggling to keep pace, eroding retirees’ financial security over time. As prices for essentials such as healthcare, housing, and utilities continue to climb, the real value of cash savings diminishes, making it more challenging to maintain the same standard of living in retirement. 

While some inflation relief is expected, retirees must remain cautious with robust strategies to ensure they plan for the future they want to enjoy. 

A New Class of Financial Adviser Will Emerge

Access to affordable financial advice is more critical than ever. Research shows 80% of Australians aged 45-54 need financial advice but cannot afford it. 

To address this, the government will introduce a “new class of adviser” in 2025. These advisers will offer simplified, affordable general guidance on topics like basic retirement planning, focusing on APRA-regulated products. 

While not a replacement for professional advisers with bespoke advice, this initiative will help more Australians access basic advice and improve their financial confidence and literacy.