Inflation and retirement saving

 I am interested in what is happening in Australia because my daughter, my grandson, and his father work and will retire in that country. So, I was interested in this story published in October by the Financial Review written by Duncan Hughes His lead is that in Australia by June 2024, retired couples aged 65-84 will need to find more money to live in retirement if inflation continues unchecked, if inflation is brought under control, then the numbers will change. My daughter and her partner have about 25 more years before they retire, but they need to take the risks seriously.

Retirees’ living expenses will increase by almost 10 percent over the next two years because of rising inflation, forcing many to find ways of boosting investment returns or accepting a lower standard of living.

By June 2024, retired couples aged 65-84 will need to find an additional $6600 a year to maintain a comfortable lifestyle, according to an analysis by RateCity, which monitors rates and fees. For singles, the increase is just over $4700.

This is based on annual expenditure for a “comfortable” retirement determined by the Association of Superannuation Funds of Australia (ASFA). The ASFA Retirement Standards for a comfortable lifestyle include one overseas trip every six years and modest social life. For households with higher expenditure, the increases would be significantly more and could mean the difference between one overseas trip or two a year.

Inflation is expected to rise to more than 7 percent by the end of this year before slowing to about 3 percent by December 2024, according to the RBA.

Retirees also face volatile stock and bond markets, making it difficult to offset the impact of inflation with rising investment returns, despite small improvements in interest payments from banks’ term deposits.

ASFA says a couple aged 65-84 needs about $66,725 a year for a comfortable lifestyle. For those 85 and over, this falls to $61,108. ASFA’s Retirement Standard numbers are updated quarterly. The next two years of inflation will increase the income needed for the same lifestyle to $73,377 and $67,200 respectively, according to an analysis by RateCity.

For singles aged 65-84 wanting a comfortable lifestyle, ASFA says the amount needed is $47,383 and for those aged 85 and over, it’s $43,996. In two years, the amounts required will be $52,106 and $48,382, based on RateCity analysis.

The following strategies can help counter inflation by increasing income and reducing costs.

Review the idea of cutting spending on luxuries such as subscriptions and memberships. But two areas specifically should be looked at – major future expenses and energy costs. I am shocked at the high prices of energy in Australia compared to Canada, so my daughter should look at an energy upgrade like solar panels and battery and/or energy-efficient windows and coverings on exposed windows.

In Canada and I suspect in Australia many people are working longer or delaying retirement or working part-time to supplement income is considered a favorable option for many seniors.

Participation in the labour force in Australia over the past two years by those aged 55-59 and 60-64 has increased about two percentage points to more than 77 percent and 60 percent respectively. Those over 65 in the workforce remain steady at about 15 percent.

As I approached retirement my financial advisor asked my to consider a more conservative investment approach. It took me ten years, but I finally did move to a more conservative portfolio, but for the first ten years I invested for growth. I retired at 60 and expect to live until I am in my late 80s or early 90’s so my investments need to last a long time. Many people my age can expect to live another 15 to 20 years. So, is important to maintain growth investments to generate income

I know of many people who retired and then spent money like there was no tomorrow. Some went on overseas holidays, and others bought new cars, or did home renovations or other expensive outlays. I did all of these things, but I was confident in my investment strategy. When I moved to a more

In British Columbia as a senior, I can defer my property taxes or borrow on a line of credit on my home. Some have purchased a reverse mortgage. This is where the senior can take the funds from the equity in their home as a lump sum, a regular income stream, cash reserve, or a combination of all three.

In Australia, the federal government’s Home Equity Access Scheme is a reverse mortgage with lower interest payments and fees but fewer services than commercial competitors.

More than 70 percent of retirees in Australia also receive some form of age pension, which is automatically adjusted for inflation twice a year. The remainder are self-funded retirees. There is also cost-of-living support offered through the Pensioner Concession Card and the Commonwealth Seniors Health Card.

As a parent and a retired person, I know that is vital to start planning for retirement well before they stop working, knowing that they can invest for longer and remembering that they may live for another 20 or 30 years in retirement. I constantly remind my daughter and my son about this, and I suspect they think I am a fussy old fussbudget.