Retirees need to plan for higher inflation

Taking into account the effects of inflation should be an important focus of all retirement plans.

Rising inflation hits retirees the hardest. They normally do not have employment income or the time necessary to accumulate more retirement savings. And with inflationary pressures here to stay for a while longer, it’s never been more important to understand the effect inflation has on retirement income streams and retirement savings capital.

According to the Association of Superannuation Funds of Australia’s Retirement Standard (ASFA), prices rose 2.8% for those living ‘comfortably’ in a couple and by 3% for singles on a ‘budget’ over the year to September 2021. This represented the highest annual increases since 2010.

A large part of our role as professional retirement planners, is to prepare strategies to provide ongoing income to meet a clients lifestyle objectives once they stop working and earning a wage. This includes detailed cash flow and capital projections based on their situation, their desired level of income and all the fun things they want to do once retired – travel, buy a caravan, live next to the beach, etc. It is imperative that inflation is factored into these projections to give a true representation of a client’s situation over the longer term.

According to Challenger Investments, even low rates of inflation can have a large impact on your purchasing power. For example, if inflation averages 2.5% per annum, then after 15 years, 31 per cent of the real value of each dollar of retirement savings has been lost. After 28 years, half of the real value of their money has gone.

There is also the rise in superannuation guarantee (SG) to 12% over the next few years that will serve to help with the issues mentioned here for those still in accumulation stage and receiving an ongoing employment income.

For more information on how we can help you plan for YOUR ideal retirement, contact us at Collective Wealth Advisers.  We tackle today, and tomorrow, together!