... the uncertainties about how your needs may change after eventually leaving the workforce.

First, there is life expectancy. It makes much sense to save for a long retirement, particularly given that life expectancies are markedly rising.

But, of course, half of us will outlive our average life expectancy, half of us won't.

Second, spending patterns typically change as retirees grow older, becoming less active and frailer as the years go on. However, spending patterns can significantly vary between retirees even with similar levels of retirement savings. Much depends on personal circumstances including health.

Ross Clare, director of research for the Association of Super Funds of Australia (ASFA), writes in the October issue of the association's magazine Superfunds about the challenges when planning for retirement given increasing longevity and varying spending habits.

Clare's article is largely based on his recent research paper Spending of Older Retirees, to be published on ASFA'S website.

"While no two individuals will have identical expenditure patterns," he writes, "governments, policymakers and individuals need to have a standard measure of expenditure in retirement on which to base their decisions."

The current quarterly ASFA Retirement Standard estimates what it would cost 70-year-old retirees to have "modest" and "comfortable" standards of living. (The calculations are based on the assumption that the retirees own their home.)

Obviously, the matter of what constitutes a "modest" and "comfortable" living standard is, of course, highly debatable with much depending upon personal circumstances and expectations.

In recognition of the longer life expectancies of Australians, Clare's research contrasts the estimated cost of financing these standards of livings for 90-year-olds against those of 70-year-olds.

A "comfortable" standard of living is estimated to cost a 70-year-old single person $42,433 a year ($37,665 for a 90-year-old) and $58,128 for a 70-year-old couple ($52,866 for a 90-year-old couple).
By contrast, it is calculated that a "modest" standard of living would cost a single 70-year-old retiree $23,363 a year ($22,529 for a 90-year-old) and $33,664 a year for a 70-year-old couple ($33,604 for a 90-year-old couple).

Older retirees tend typically spend more on assistance in their homes such as cleaning services and on medical care while spending less on transport and entertainment.

Retirement tends to be used as an all-encompassing description of the period spent after a person leaves the workforce. In reality, retirement is much more complex with many shades of grey.

By Robin Bowerman
Smart Investing
Principal & Head of Retail, Vanguard Investments Australia
09 October 2014