We all are acutely aware of inflation at the moment. It hits us all in the wallet every time we stop at the supermarket or fill up with petrol. But for retirees it can have an even bigger impact on their regular income to live on.
Inflation can affect how much your retirement savings will be worth and over time, it can seriously devalue your savings and reduce your income every year.
Factoring inflation into your retirement savings is key to preserving your long-term capital and ensuring that you have an ongoing income to match your retirement needs. That's where our partner Lifetime Retirement Income can help.
They can take care of the income part of your retirement plan by actively managing the key unknowns like your life expectancy and ongoing factors like inflation.
So today we share a case study written by Lifetime Retirement Income about the invisible threat of inflation to retirees and how Lifetime helps safeguard their purchasing power. You can read the article here: Inflation – the silent slayer of retirement income
Or you can read the article published in full below and tell us what you think in the comments section.
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.
“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.
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.
Have you thought about Lifetime Retirement Income to look after your money in retirement?
They know that people spending in retirement require significantly different strategies to those who are saving for retirement. They manage retirees money a little differently to people who are saving for retirement. The reason for that is we have to make sure retirees savings last.
Then click on the button below and take a couple of minutes to read all about them.