Inflation – the silent slayer of retirement income

If there’s one thing Julia Cross (74) hates, it’s waste. Which is why she’s just spent the morning making marmalade and preserving lemons. With a prolific orange and lemon tree outside the kitchen window, she just can’t bear to see the lemons withering away on the ground and gets a kick out of seeing them preserved on the shelf.

She and husband John (75) were teachers before retiring together seven years ago. They’ve always been frugal, resourceful and try to reuse things - skills they thought would hold them in good stead for their retirement. Which is why it was such a surprise when their financial strategy began to fail recently, thanks to the devastating impact of inflation on their disposable income.

When retirement goes wrong

“It was all working fine up until the last few years,” says Julia.

“Then suddenly, the weekly spending money that had been there…just wasn’t. The interest off the term deposits and the super money itself just wasn’t stretching across the things it did a few years ago. It was like a thief was coming in and pinching a chunk of our money each week.

“We were having to say no to things we’d always considered to be an essential part of our retirement dream. The trip down South for our granddaughter’s graduation. The extra game of Bridge. We even had to give up the extra health supplements we like to buy.”

That thief raiding Julia and John’s wallet was inflation. Something no police officer can catch.

The invisible threat of inflation

Because it’s so sneaky, many people forget about the erosive impact inflation can have on household finances. And it’s particularly hard on retirees, who can’t exactly ask for a pay rise, or look around for a higher-paid job to help them keep up with rising living costs.

The Cross’s purchasing power went down over 21 percent since they retired in 2017. What they could buy with $1 seven years ago, now costs them $1.27. Inflation ate away at their disposable retirement income to the point they found themselves going without essentials.

You can check out how inflation might impact you with the Reserve Bank’s inflation calculator.

Lifetime helps safeguard your purchasing power

Julia and John were delighted when they heard about the Lifetime Retirement Income Fund’s option to adjust their income for inflation.

Their initial investment of $170,000 will generate a fortnightly income of $359 today, rising by 2% each year to keep pace with the government’s midpoint inflation target. This means when Julia and John are 85, they’ll be receiving around $447 per fortnight, increasing to $534 by their mid-90s for a total income of $243,714 (based on forecast returns, and after fees and Prescribed Investor Rate tax at 17.5%) by the time Julia turns 95.

Lifetime Retirement Income actively manages the big unknowns like life expectancy and inflation to help preserve your long-term capital to help see you through.

“I’m happy to stick with the fruit preserving and leave the income preservation to Lifetime,” Julia says.

This case study is hypothetical in nature and provided for illustrative purposes, only. Where based on a scenario involving our customers or prospective customers, names and details have been changed to protect privacy.