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How inflation is quietly moving the goalposts on retirement

Most conversations about inflation focus on what it costs you today. The grocery bill. The mortgage repayment. The electricity bill that arrived higher than expected. These are real and they matter. But there is a second effect of sustained inflation that gets far less attention, and it is the one that will follow Australians into retirement long after the current cycle has passed.

Inflation does not just make life more expensive now. It changes how much you need to have saved before you can stop working. And for millions of Australians who are watching their disposable income shrink while simultaneously trying to build a retirement nest egg, those two pressures are pulling in opposite directions at the same time.

The maths, as I have been saying to clients lately, does not math.

What the benchmarks actually mean in an inflationary environment

The Association of Superannuation Funds of Australia (ASFA) publishes a Retirement Standard each quarter that sets out how much a single person or couple needs in super to retire comfortably or modestly. The most recent figures, updated in early 2026, put the comfortable retirement benchmark for a single homeowner at $630,000 in super, funding an annual income of approximately $54,240.

That figure is adjusted quarterly to reflect current prices. What it does not capture is what happens to a retiree who retired five or ten years ago on a fixed drawdown strategy built around an older, lower benchmark. A retiree drawing $45,000 a year in 2020 on a strategy designed to last 25 years has watched the real purchasing power of that income erode significantly. The same groceries, the same utilities, the same healthcare costs now consume a materially larger share of a fixed income.

The $630,000 benchmark is a moving target, and the direction of movement is upward. Every year that inflation runs above the assumed rate built into a retirement projection, the gap between what a retiree has and what they actually need widens.

Inflation isn’t just about the additional cost of living now. It means you need more in savings and super to meet your needs in retirement. You have less disposable income today and a higher target to hit. The maths becomes very uncomfortable very quickly.

The emotional weight of the comparison trap

Beyond the arithmetic, there is a psychological dimension to sustained inflation that financial planning rarely accounts for. When people compare what their income or super balance could buy five years ago with what it buys today, the gap can feel insurmountable. The comparison trap — what I had versus what I have — is one of the fastest routes to financial paralysis.

Inflation has an emotional charge. It makes people doubt whether they can ever get ahead. And when that doubt takes hold, the response is often to disengage entirely rather than take the small, consistent actions that actually make a difference over time. Financial disengagement during an inflationary period is one of the more expensive decisions a person can make, even though it feels like doing nothing.

The interest rate assumption that catches people out

A widely repeated piece of financial conventional wisdom is that rising interest rates are bad for mortgage holders but good for investors and savers. This is only partially true, and the part that is missing matters.

Rising interest rates benefit savers when the rate on their savings or investments rises above inflation. When it does not — when the return on a term deposit or a conservative investment option sits below the inflation rate — the investment is still going backwards in real terms. A 4.5% return on a cash account against a 5% inflation rate is a real return of negative 0.5%. The nominal number is positive. The purchasing power outcome is not.

For retirees in conservative investment options, or for working Australians who shifted to cash during market volatility, this is a particularly important calculation to run. The rate of return on an investment needs to be assessed against inflation, not just against zero.

Three things worth doing before 30 June

EOFY is a practical moment to address some of the structural responses to inflation that tend to get deferred. Three are worth prioritising.

The first is to review what your super is actually invested in. Many Australians are in the default investment option chosen by their fund, which may be a balanced or MySuper option. For working Australians with a 15-to-25-year horizon to retirement, a more growth-oriented option has historically outperformed a balanced option over that timeframe and provides better long-term protection against inflation eroding the real value of the balance. This is worth reviewing before the end of the financial year, when people tend to be paying closer attention to their financial position anyway.

The second is salary sacrifice. Anyone earning above $45,000 pays a higher marginal tax rate than the 15% contributions tax applied to salary-sacrificed super contributions. In an inflationary environment where disposable income is under pressure, the after-tax cost of redirecting a portion of salary into super is lower than the gross figure suggests. It is one of the more efficient tools available within the existing tax framework.

The third is a line-by-line review of recurring expenses. This sounds basic, and it is — but inflation has a way of embedding cost increases across subscriptions, insurance premiums, and service contracts in ways that are easy to overlook because each individual increase seems manageable. Reviewed collectively, the picture is often different. Home loan rates in particular are worth revisiting: the gap between the rate a loyal customer is paying and the rate available to a new customer at the same bank, or at a competing lender, can be material.

The case for not disengaging

The instinct to disengage when financial pressures feel overwhelming is understandable. It is also one of the more costly responses available. The structural tools that exist within the Australian super system — concessional contributions, catch-up contributions for those with balances under $500,000, the government co-contribution for eligible earners — are available regardless of the inflationary environment. They do not become less valuable because costs have risen. In some cases, they become more valuable.

Inflation changes the numbers. It does not change the fundamentals. Consistent contributions, appropriate investment choices for the time horizon, and a clear picture of current spending are the responses that hold up across economic cycles. The environment makes them more urgent, not less relevant.

 

Jen Richardson is an accountant, mortgage broker, and former financial planner with over 30 years of experience in the Australian financial services industry. She is the founder of My Money Makeover, a self-paced financial education program helping women build a calm money system and take control of their financial future.

 

  •   13 May 2026
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18 Comments
David
May 14, 2026

"The most important thing to remember is that inflation is not an act of God, that inflation is not a catastrophe of the elements or a disease that comes like the plague. Inflation is a policy."
Ludwig von Mises

7
James#
May 17, 2026

Many countries have a lower inflation target 1-2%, rather than 2-3%. That in itself makes a big difference over longer time frames. Failure to keep inflation in the band is even worse.

Our RBA governor is not doing a good job! Inflation too high for too long and too timid with interest rate rises, means higher costs and wages are permanently imbedded now.

Ramani
May 14, 2026

I hope someone better informed than me would clarify how we, as consumers and providers, can resolve the conundrum whereby we aggressively seek greater remuneration for goods and services we provide, whilst forever whingeing about the increased costs of others' remuneration for what they provide? Why is inflation desirable and sinflation simultaneously? Apart from blaming self-interest and hoping our grab exceeds others', are we pining for economic alchemy, or a one-sided paper?

6
Sam
May 17, 2026

For our small business it’s really about our position in the value chain. If all the inputs are increasing we are forced to either wear the difference in the form of lower margins or pass it on. As we are not a charity we still want to make a living and some return on our effort and invested equity as such the margin of profit can only compress so much before the costs out way the benefits.

1
Jim
May 14, 2026

Thanks for a thought-provoking article. It is amazing how little attention is paid to inflation (except for the shocked headlines when it bounces to a level once thought quite mild).

For long-term investment the return after fees, taxes and inflation is absolutely critical. That measure ought to be fundamental to the government’s super fund performance test. Instead, they ignore it and focus on conformance to arbitrarily and obscurely selected indices (and then compound the felony with an effectively useless comparison tool).

A serious focus on returns after fees, taxes and inflation would reveal immediately the danger (which you point out) of so-called conservative investments, which pay low real returns and therefore lead to a retirement lifestyle which is unnecessarily constrained and which requires more age pension support than it should.

It’s downright scary that the Standard Risk Measure for superfunds ranks bank deposits as low-risk and share portfolios as high risk. That’s based purely on short-term variability (probability of a negative annual return, whether large or small), and thus completely misses the whole point of long-term investment to fund living costs. A far better measure of risk for this purpose would be based on the likely total lifetime real income (given a standard drawdown schedule, such as the account-based pension minimum percentages).

That sort of approach would reveal that an investment strategy focussed on strong (but not wildly volatile) growth is far less risky with regard to the variable that matters than is a low-return, low volatility “conservative” approach.

The ASFA standard, which you also discuss, lacks a fundamental line in the budget: a provision to allow for the fact that the parameters assumed may deviate very substantially in the decades following retirement. It would be interesting to know how someone, who took the very first ASFA standard literally and used that to set their asset level at the start of retirement, is faring now.

I suspect that if one looked at the consequences of future inflation being much higher than assumed, and focussed only on income, then for many retirees the increase in age pension as the real value of assets declined would compensate for the associated reduction in investment income. Problem solved, no?

Well, no, for two reasons: firstly, it ramps up government pension costs, and secondly, that approach ignores the value of the capital in providing the retiree with resilience to financial shocks.

4
Dudley
May 16, 2026


"the Standard Risk Measure for superfunds ranks bank deposits as low-risk and share portfolios as high risk":

Where risk is defined as historic likelihood of loss multiplied by quantity of loss.

"the whole point of long-term investment to fund living costs. A far better measure of risk for this purpose would be based on the likely total lifetime real income (given a standard drawdown schedule, such as the account-based pension minimum percentages)":

Ratio of capital to expenditure and funding term can be more significant than real net return rate.

https://www.firstlinks.com.au/how-much-do-you-need-to-retire-comfortably

'Dudley May 23, 2024'
'Minimum average net real total return per year required throughout retirement:'
https://freeimage.host/i/image.JV1zXJp

Extreme case: Capital to expense 128, Term to death 1 year; can afford to lose at 99.22% per year.

Dudley
May 14, 2026


"Inflation isn’t just about the additional cost of living now. It means you need more in savings and super to meet your needs in retirement. You have less disposable income today and a higher target to hit. The maths becomes very uncomfortable very quickly.":

No one knows nothing about the future. The past is past.

Making the mighty leap of faith that the future will be something like the past and present, and adjusting and adapting ...

Present Value; Return rate 5.5% / y, Inflation 3% / y, To 97, From 67, withdrawal 2.5% / y, Future Value 1:
= PV((1 + 5.5%) / (1 + 3%) - 1, (97 - 67), 2.5%, 1)
= -1.02 (- = in / into fund)

'To have $1 when 97, with returns 5.5% / y and inflation 3%, requires $1.02 starting from 67 presuming 0% tax.

3
Sandwiched generation
May 15, 2026

and what about the cost of nursing home RAC, and DAP's when staying at home with the highest support government package can not deliver enough hours for nursing home level of care?

And you have your own home, but govevernment VCAT won't allow you to sell it. The delays are enourmous.

I had this rude awakening, an it becomes the struggling family member to figure the hardest maths of all at my own parents 'sunset' chapter.

I am forced to take on my own journey with the stock market. To get better at choosing Growth stocks and appareciating my own superfund.

1
Dudley
May 16, 2026


"and what about the":

May be soon that you can ask AI and get a good answer.

Google: 'How to optimise home value and nursing home RAC, and DAP's?'

AI will improve as more people ask more often giving detailed circumstances.

At the moment expect AI to be better at getting you to ask better questions than to give you better answers.

1
GeorgeB
May 16, 2026

Inflation is a foolproof mechanism for transferring wealth from creditor to debtor. Hence its a blessing to the indebted and a curse to savers particularly when real interest rates turn negative. For voters bracket creep, which is taxation by stealth, mostly flies under the radar and governments have been happy to keep it that way until Angus let the cat out of the bag. There is massive cost to government if they get rid of it (by indexing marginal rates) and an equally massive cost to the taxpayer if they don't.

2
Gail N
May 18, 2026

You are quite correct, hence the investments in rental properties to fund retirement. The rents tend to keep pace with inflation. I will have enough to live on until I die and the Capital Gains will flow on to my beneficiaries, Win- win!

Wildcat
May 16, 2026

Inflation to money is like cancer to humans. It eats it out from the inside until it kills you.

If you follow the SWR (Safe Withdrawal Rate) you should draw 4% of your capital. You’ll have a high chance if a 60/40 or 70/30 proportion is used of never running out of money. This was a study over about 100 years including the depression era. Recent commentary has suggested it was perhaps too conservative, with the inflation dragon out of his cave I’m sticking with 4%.

The other key assumption is it assumes no aged pension. With this rider maybe 5% or so is ok but I haven’t seen any detailed studies on this being factored in.

But if you think about it simply. If you can pay yourself 4% and earn 7%, you bank 3%. Next year you draw 4% which 1.03 times last years drawing as you saved 3%. You therefore have indexed capital and indexed income. Happy days.

Of course of inflation is 5% you are still going backwards by 2%. Hopefully this is low enough to last your days.

1
Dudley
May 16, 2026


"pay yourself 4% and earn 7%, you bank 3%":

Real net after expenses:
Tax 0%, return 7%, burn 4%, inflate 3%:
= (1 + (1 - 0%) * (7% - 4%)) / (1 + 3%) - 1
= 0.0%

1
Wildcat
May 17, 2026

Exactly. It’s perpetuity and if inflation is 3% you never run out of income and the real value of you portfolio will be maintained (dollar value increases) and because your income is a fixed percentage your income Is also indexed.

Happy days.

1
Barbara
May 17, 2026

It is interesting that the article is about what to do if not already retired. What about those who have already retired or about to retire - where do we put our money to obtain above inflation rate outside what we have in Super?

1
Francis H
May 17, 2026

The problem of inflation for retirees is even worse than people think. This is because the cost of living is explained by reference to the CPI. The same with inflation. The CPI is not a cost of living index. It does not capture housing costs properly or the increases in goods prices where the goods in question have a technology input. Because the ABS has to measure apples and apples an improvement in the quality of a product results in a discounted price increase. This flows through to wages, pensions, investment metrics etc. The classic example is the family car. Between 1984 and 2004 the price of the family car had increased by 8 % according to the CPI whereas the actual increase was 48 %. The retiree in 2004 paid the 48 % increase but his wages and pension only increased by reference to the CPI. The other impact on incomes is the practice of Governments to introduce cost of living measures which artificially lower the CPI. The electricity rebates are a case in point. Where incomes are linked to the CPI this results in lower incomes. So what is given in one hand is taken away with the other. The Government gets the political benefit and lowers its pension costs. Many Government pension liabilities are solely linked to the CPI. Examples of this sleight of hand abound. It is true that the CPI will rise when the rebates are withdrawn but the damage has already been done.

1
Old super hand
May 14, 2026

Some good advice in the article about the need to engage.
Retirement income planning also needs to take into account receipt of the Age Pension (where applicable). A single person with $630,000 in assessable assets would get at least a part Age Pension initially, with the amount growing as assets are run down and as the Age Pension increases in line with the greater of inflation or a wages growth measure. The Age Pension can help retirees with future cost increases.
Online calculators take into account Age Pension and future price increases, with retirement spending estimates in current dollars meaning that spending goes up with inflation in the future.

 

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