The current inflationary environment has made things tight for many – but it also offers an opportunity to create money habits that will stand you in good stead for retirement. With some knowledge and planning, it’s possible to turn this testing time into a learning opportunity on how to live well, and cost-effectively.
The first step in any retirement plan is to work out how much income you’ll need to fund your retirement lifestyle. Inflation has an impact on your spending power, and when prices go up and you have the same income, you’re likely to make different choices about your spending as a result.
What you can do to manage your retirement income when inflation is high
- Revisit your costs. According to the 2022 AMP Financial Wellness Report, 45% of retirees follow a budget to help them stay on top of their costs and manage their retirement income.1 Getting into the habit of budgeting is worthwhile at any stage of life. Understanding your current costs gives you a solid base to start working out your retirement expenses. As a bonus, saving (or contributing and investing) more money now can make you more financially secure in retirement. Create categories for your expenses that go beyond basic costs: the things that bring you joy, the nice-to-haves and the things that you could easily give up. From there, you can start building a truly personalised budget that’s easier to stick to.
If you’re not used to budgeting, our video gives you tips on how to determine your annual spend.
Even if you’re not eligible for the Government Age Pension, you may be eligible for a Commonwealth Seniors Health card. This provides discounts on medicine, health and other Government services. For a full list of Government benefits to help support you in retirement, visit Services Australia.
- Invest to manage inflation risk. Before you retire, your super is invested so you can maximise the savings you’ll have to live on when you’re not earning an income anymore. Once you’ve left work and exited from SASS you’ll need to find a way to invest your savings to keep them growing. Getting a better investment return in retirement can help your savings last and offer you the potential of more income for longer.
Our research shows that about a third of retirement income from a pension account comes from the investment returns. When inflation is high, it’s even more important for retirement savings to benefit from the long-term growth that investing can provide, so that your retirement income keeps up with the increased cost of living. You can choose from different options to generate income from your super with a retirement income account.
If you work with a financial adviser to manage your investments in retirement, it’s important to check-in with them regularly to look at your income needs and to stay on track for your plan.
Find out more about what rising inflation means for investments and retirement strategies.
- Look at ways to boost your income. If you’re worried about having enough to spend throughout retirement, there are a few things to look at:
- Other assets and investments – you may have other investments outside of super – such as a share portfolio or a managed fund – you can rely on for income in retirement. You may have cash savings that you want to invest. If you downsize your home, you can potentially access further funds.
- Check if you’re eligible for Centrelink benefits – 60% of Australians over the age of 65 get extra income from the Age Pension2. Go to Services Australia.
- Part-time work – this can be a good way to top up your income, particularly in the early stages of retirement, and help your savings last longer.
Find out more about starting a side hustle to earn some extra income in retirement.