Is that with an M or a B?
Every time I hear about the effects of inflation and how purchasing power is eroded, I always think of this scene in Austin Powers where he seeks a ransom of $1,000,000.00 only to be chastised for it not being enough.
Retirement Keeps Getting More Expensive… and it won’t stop.
Retirement planning is often simplified as a race towards a number.
Accumulate enough super and enjoy the rewards of decades of hard work.
But there's one problem with that thinking… the finish line keeps moving.
As inflation pushes everyday costs higher, the amount you need to fund an enjoyable retirement continues to rise. What seemed like an adequate retirement income just a few years ago may no longer deliver the lifestyle you expected.
According to the latest ASFA Retirement Standard, a retired couple-homeowner now requires approximately $79,000 per year to maintain a comfortable retirement lifestyle.
Just five years ago, that same figure was around $63,000 per year! That's an increase of almost 24% in only five years.
Whilst these are broad Australia-wide averages, they provide a powerful insight into what retirees are exposed to.
A Hidden Retirement Risk – Erosion of Purchasing Power
Most people understand the risks involved in investing. Market downturns grab headlines and can be uncomfortable to watch. Far fewer people appreciate what economists call purchasing power risk.
You can see it in the way many people begin retirement planning.
"I need $80,000 a year in retirement."
The problem is that $80,000 today won't buy what $80,000 buys in five, ten or twenty years’ time.
We've all experienced this firsthand. Grocery bills are higher than they were a few years ago. Electricity prices have risen. Insurance premiums continue to increase. Filling up the car costs more than it used to.
When these costs rise, your required income needed rises with it, or you risk having less money to spend on the fun-side of things (and what were all those hard years of work for?).
Keeping Your Money Working
Many people assume that reducing investment risk is the key to a successful retirement. But taken too far, a highly conservative portfolio can become a risk in itself, gradually eroding your purchasing power as the cost of living continues to rise.
The goal of retirement planning isn't to avoid every market downturn.
It's to ensure your future income can keep pace with a rising cost of living.
Because the greatest threat to retirement success isn't necessarily a bad year in the markets. It's decades of inflation quietly reducing what your money can buy.
What We Would Do If We Were You!
If it's been more than 12 months since you've reviewed your retirement projections, it may be worth checking whether your plan has kept pace with inflation. The cost of retirement has changed. Your strategy should too.