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.