The Inflation Effect on 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 a longer distance. However, what about the value of your retirement funds? How will inflation impact on 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 “get back on track”?

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. It’s a great eye-opener. Type in “inflation calculator”.

How much?!

One hundred dollars worth of goods purchased in 1976 would now cost $500! You’re right, 40 years of retirement is not the norm, so let’s look at the value of $100 in a more realistic retirement timeframe of 20 years.

One hundred dollars spent in 1996 grew to $162.52 in 2016. On first glance that doesn’t seem much BUT when you realise that the increase over that time was 62.5% you might be a bit more concerned. Over the 20-year period this averages out to just 2.5% 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 and the current economy.

Your retirement savings

With “bonus” interest cash accounts currently earning anything up to 3.2% pa interest, and term deposits about the same, apply the current inflation rate of 1.3% to this and you’ll realise that these accounts are not earning much real returns; in fact, some are losing value. This is why it’s so important to be vigilant about how inflation may affect your super 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 us. I’m sorry we don’t have a crystal ball, but we do have a good understanding of how all this works!