Inflation is hurting retirees, but there are ways to protect your lifestyle

Inflation is threatening the important social connections of older people.

Inflation is threatening the important social connections of older people. Photo: Getty

Australia is in the grip of inflation not seen since the late 1980s, making it increasingly hard for retirees to survive on their savings and the age pension.

If you are caught in a retirement income squeeze, there are things you can do to help you make it through.

The age pension recently rose by $38.90 a fortnight for a single person and $29.40 per person per fortnight for a couple.

That’s a welcome increase, “certainly when you’ve been getting increases as low as $2 in recent years when inflation has been low”, Combined Pensioners and Superannuants Association policy manager Paul Versteege said.

However, it still leaves pensioners in the lurch during inflationary times.

“Don’t forget they look at the inflation rate from January to June and they don’t top up the pension till the end of September and that is a long time when inflation is high,” he said.

So, despite the pension rise many people are suffering through inflation: “We’re getting lots of complaints about the cost of living, which has really knocked people across the board.”

Cost-of-living rises are forcing lifestyle changes that can damage people.

“One lady told me she went to lunch at a club each week with friends, but she has had to stop.”

Such decisions are “tragic” because they reduce personal contact which, in turn, has damaging psychological effects, he said.

What can you do?

One option for retirees or those about to retire is to restart or extend your working life.

The government has become quite encouraging of prolonging working lives.

If you are on the pension and work then the government allows you to earn up to $11,800 on top of your pension before government support begins to wane.

A couple can earn up to $89,211 before the pension runs out completely.

That means if you are on a full or part pension or want to retire on that, then there is plenty of scope to have a side earn in your retirement.

The other option that many are taking is to keep working beyond retirement age.

“We’re finding that people are retiring later – I’ve got a heap of clients that have passed retirement age but aren’t retired,” said Wayne Leggett, adviser with Paramount Financial Solutions.

The idea of retiring at 65 is increasingly not what people want, he said.

“Sometimes it’s because they can’t afford to, but in the main it’s because they don’t want to.”

Rejig your super payments

About 24 per cent of retirees survive partly on a pension and partly on their superannuation savings.

If you are in this position and are feeling cost-of-living pain then spend a bit more of your super, and reduce the kids’ inheritance or let your super run out earlier than it might.

Given that large numbers of people die with significant super unspent, this strategy could be relatively painless.

Even if it means you spend super more quickly, people’s spending needs generally reduce as they age.

There are also options for couples with an age spread.

If one is retired and one is still working then it may be useful to move as much superannuation as you can from the retired partner – who will then go on the pension – to the partner still working.

That will allow the couple to earn the maximum in a pension while enjoying a larger super pool over time.

What do you need to retire on?

The Association of Superannuation Funds of Australia (ASFA) claims that a comfortable retirement demands a lump sum of $545,000 for a single person and $640,000 for a couple when they stop working. That also assumes home ownership.

If you don’t own a home, then Mr Leggett says you will probably need an extra $200,000.

“It might cost you $200 or $300 a week extra if you have to rent and, given the effects of capital and earnings over 20 years, you may have to retire with $200,000 extra to make up for that.”

Not making that figure

Figures from actuaries Rice Warner show that along with the 24 per cent of retirement age people on a part-pension and 39 per cent on a full pension, another 37 per cent are self-funded retirees.

Many of those may have achieved ASFA’s comfortable retirement, but figures show that a lot of people in the run up to retirement fall well short of that.

The median superannuation balance for those between 60 and 64 is $160,000, so many of those are likely to fall well below the ASFA comfortable standard.

However, they will retire with significantly more than the $70,000 that ASFA says is necessary for a ‘modest’ retirement.

If you fall between the modest and comfortable retirement notches then Mr Leggett says you will have choices to make to keep up with inflation.

“You have choices like do you want to holiday in the Bahamas or Bali; do you want to drink wine from a bottle or cask, and how much do you want to spoil your grandchildren?” Mr Leggett said.

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