Inflation hits retirement income hard

Rising inflation is affecting all sectors of the economy, but retirees are feeling the pinch particularly keenly, according to retirement and investment manager Challenger.

Australia is experiencing cost-of-living pressures not seen for decades and just about every household budget has taken a hit, a new report from Challenger finds.

Working-age Australians are undoubtedly feeling the cost increases, but they have ways to counter inflation, such as negotiating a higher wage or leaving for a new role.

Unfortunately, retirees don’t have that luxury, which means inflation can bite them hardest of all.

Read: Team financial security – the shoes you need filled

Aaron Minney, head of retirement income at Challenger, told Financial Standard that retirees are in a worse position than in the past, even during economic downturns.

“Given retirees have to make their money last, on average, for around 24 years compared to 13 years in the 1970s, finding a solution is critical to the health of the economy,” he says.

“Even modest rates of inflation can hamper a retiree’s lifestyle; with inflation of only 2 per cent a year, one-quarter of the real value of the nominal income is lost after 14 years.”

Mr Minney recommends staying ahead of inflation by purchasing or moving your money to a retirement income product that is linked to the Consumer Price Index (CPI) such as short-term CPI-linked bonds or a CPI-linked annuity.

Read: Understanding your true future living costs

That way, when prices go up – so does your income.

“It is important to generate an income stream that compensates for inflation,” Mr Minney says. “This is more important than managing the real capital value. Innovations in recent years provide more products for retirees to generate income and has expanded the ways that retirees can manage inflation.

“Retirees can choose the type of inflation protection that they prefer, from none to a guaranteed CPI-linked option to approaches that retain some market risks.

“This is in addition to the option to drawdown capital, adjusting for inflation as desired.”

Read: How much do you really need to retire?

It’s important to seek professional financial advice when making decisions about your retirement income.

The YourLifeChoices Older Australians Insights 2022 survey revealed just under one quarter (23 per cent) of retirees consulted a financial planner before retirement. It also revealed that over half (57 per cent) believed they were financially literate enough to navigate retirement without professional help.

Unfortunately, escalating fees in the financial planning sector are putting this advice out of reach for some – right when they need that help the most.

The Padua Advice Fee Data Report FY22 shows initial advice fees charged by advisers on a per-document basis increased 16 per cent over the past financial year, from $2859 in the 2020–21 financial year to $3315 in the 2021–22 financial year.

Ongoing advice fees saw an even bigger increase of 33 per cent from $3656 in 2020–21 to $4865 in 2021–22.

Anne-Marie Esler, co-CEO and co-founder of Padua Solutions, told Professional Planner the astonishing jump in fees over the past 12 months was a major reason why relatively few Australians were seeking professional financial advice.

“Especially when advice fees can rise by more than double the current rate of inflation,” she says.

“If we as an industry don’t work towards reducing the cost of providing advice, it will become increasingly inaccessible for most people, and especially those who would potentially stand to benefit most from financial advice.”

How badly has your income been affected by inflation? What can be done about the cost of financial advice? Let us know in the comments section below.

Brad Lockyer
Brad Lockyer
Brad has deep knowledge of retirement income, including Age Pension and other government entitlements, as well as health, money and lifestyle issues facing older Australians. Keen interests in current affairs, politics, sport and entertainment. Digital media professional with more than 10 years experience in the industry.


  1. This misses the point that those who need advice the most can’t afford it. Also, it is fine for those who have the funds to buy an income stream or annuity, but those who rely solely on the Aged Pension are left right out. And they can’t top up their pensions, because when they do they lose 50c in the dollar, but this doesn’t take into account the other increased costs they incur in earning the income. So, they actually earn a dollar and can lose as much as $1.75 to $5. It is not rocket science.

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