Inflation-proofing your retirement

Without the benefit of a crystal ball, it’s impossible to determine exactly how much one person will need to meet their individual retirement needs. We often hear that we’re living much longer, so the amount we retire on must last longer. However, what about the value of your retirement funds? How will inflation impact your savings, particularly if you’re still being highly conservative and holding a large portion of your portfolio in cash waiting for the economy to “settle down”?

Now and then a good place to start is by looking back at how inflation has affected the cost of living in Australia. The Reserve Bank of Australia (RBA) has a handy calculator on its website ( that tells us how the cost of a “basket of goods and services” has changed over a chosen timeframe.

How much?!

One hundred dollars worth of goods purchased in 1974 would now cost an astounding $765! You’re right, 40 years of retirement is not the norm (and we hope Australia never experiences 10% inflation as it did in the 70s), so let’s look at the value of $100 in a more realistic retirement timeframe of 20 years.

One hundred dollars spent in 1994 grew to $170 in 2014. On first glance that doesn’t seem as astounding BUT when you realise that the increase over that time was 70%, you might be a bit more concerned. Over the 20 year period this averages out to just 2.7% per year, which doesn’t sound too bad and is within the RBA’s target – but let’s go back to your retirement fund investments.

Your retirement savings with “bonus” interest cash accounts currently earning anything from 0.01% to 4.0% pa interest, and term deposits about the same, apply the current inflation rate of 1.5% to this and you’ll realise that your cash is not earning very much; in fact in some accounts it’s losing value. This is why it’s so important to ensure your super is invested for growth that takes into account inflation in the lead up to and during your retirement.

Every investment must meet your own individual needs, now and into the future. If you would like to learn more about how to manage inflation in your retirement, speak to your financial advisor. They may not have a crystal ball, but they do have a good understanding of how all this works!

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General Advice Disclaimer

This article contains general advice only, which has been prepared without taking into account the objectives, financial situation or needs of any person. You should, therefore, consider the appropriateness of the information in light of your own objectives, financial situation or needs and read all relevant Product Disclosure Statements before acting on the information. Whilst every care has been taken to ensure the accuracy of the material, Paradigm Strategic Planning or Sentry Advice Pty Ltd will not bear responsibility or liability for any action taken by any person, persons or organisation on the purported basis of information contained herein. Without limiting the generality of the foregoing, no person, persons or organisation should invest monies or take action on reliance of the material contained herein but instead should satisfy themselves independently of the appropriateness of such action.

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