HomeRetirementRetirement IncomeRetirement lifestyle threatened by rate and CPI rises

Retirement lifestyle threatened by rate and CPI rises

Retirement lifestyle is meant to be one of relative comfort. You’ve worked hard for decades, and as a retiree you deserve a bit of rest and recreation. That’s the idea, anyway. But certain events over the past few years may have changed that for many.

The pandemic, rising interest rates and soaring inflation have dramatically changed the landscape. That comfortable retirement many have dreamed of is in danger of being less comfortable or more expensive – or both – than hoped.

Australia’s Reserve Bank finally provided some relief in April. It kept the interest rate on hold after consecutive increases in every one of the previous 10 months. Although, in early May, the official cash rate target was lifted by 25 basis points from 3.6 per cent to 3.85 per cent. The nation’s cash rate is now the highest it has been since April 2012.

These interest rate rises finally appear to be having their desired effect. The latest figures from the Australian Bureau of Statistics show an annual Consumer Price Index (CPI) of 7 per cent for the March quarter. This is down from 7.8 per cent in December, which was a 30-year high.

Slowing inflation and a pause in interest rates, albeit one, is certainly good news, but a 7 per cent inflation rate is still significant. Prices across most sectors continue to rise, albeit not quite as steeply as they have been. This environment will have had an impact on the retirement lifestyle of many, if not most Australians.

Maintaining your current retirement lifestyle

Most couples will need to spend about $6600 more this time next year than six months ago, simply to maintain their current retirement lifestyle.

Those who have retired and those who are planning retirement will need to adjust their expectations and/or their spending accordingly. Many will have already done so.

For those no longer working, there are broadly two paths that can be taken in response to the current conditions: spend more or live with less. Spending more may be an option for some, although the obvious consequence of doing so will be having less money to spend down the track.

Deciding which option is best for you might be best served by discussing the matter with a financial planner. They may well encourage you to ‘loosen the belt’. This would be in line with a general recent change in philosophy towards superannuation. Many industry experts believe Australians in general are not spending enough in the earlier phase of retirement.

The alternative path is to tighten the money belt now and ride out the current phase of the economic cycle. That may mean delaying a big holiday for a couple of years, or maybe more.

Before making such a sacrifice, it’s worth considering what that might mean for you when holiday time eventually arrives. Are you (and/or your partner) likely to be in good health by then? This is obviously not a question your financial planner can answer, but they will be able to give you an idea of the financial impact of postponement.

Is delaying retirement a good idea?

Those still working also have two broad, but different, options. The first is to maintain your current course and retire as planned. And the obvious alternative is to push that retirement date back.

Again, arriving at the right decision for you might be best done with a registered financial planner. It will involve similar discussions. Will pushing back retirement leave you enough years of good health to enjoy the retirement lifestyle of which you’ve dreamed? Or will retiring earlier increase your risk of running out of funds before you run out of time on earth?

A comfortable retirement lifestyle should be something you can look forward to, or have now if your working days are over. The economic uncertainty makes planning for that more difficult but, for most, not impossible.

With good advice and planning, the retirement lifestyle you’d planned and hoped for should still be achievable.

Are you retired, or planning to retire soon? Have you factored interest rates and inflation into your retirement plan? Let us know in the comments section below.

Also read: Inflation forcing shoppers into unhealthy choices

Andrew Gigacz
Andrew Gigaczhttps://www.patreon.com/AndrewGigacz
Andrew has developed knowledge of the retirement landscape, including retirement income and government entitlements, as well as issues affecting older Australians moving into or living in retirement. He's an accomplished writer with a passion for health and human stories.
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