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Inflation hits retirees as super balances shrink (and what you can do about it)

Compilation image of piggy bank and cash in back pocket
Retirees' super balances are taking a hit amid rising inflation. (Source: Getty)

When you’re on the treadmill of working, a shrinking superannuation fund is uncomfortable.

But that’s nothing on how it feels if you’re relying on that fund to pay for your day-to-day life.

And this is particularly so given that new figures reveal retirees are bearing the brunt of price hikes.

The latest retirement standard index from the Association of Superannuation Funds of Australia (ASFA) shows a couple aged 65 now needs to spend $66,725 a year for a comfortable retirement.

Singles need to part with $47,383.

Those figures are up 2 per cent and 1.9 per cent, respectively, on the previous quarter.

Read more from Nicole Pedersen-McKinnon:

And that’s more than the 1.8 per cent hip-pocket pain inflicted across the rest of the population.

In the past year alone, the hit to retiree couples was 6.2 per cent and 6.7 per cent for singles. Prices in the overall economy have lifted only 6.1 per cent.

So retirees are seeing their super stretched in two directions - their 'fun' fund has fallen while their funding requirements are rising.

But there is a savvy, swift way of putting more money back in your pocket. I’ll get to it in a sec.

First, let’s start with what exactly is defined as a comfortable retirement. And why is it extra costly?

What super statisticians call ‘comfy’

This type of lifestyle in retirement is by no means lavish.

There is also a ‘modest’ lifestyle classification that limits the luxuries a little more.

Realise right now that both assume you already own your own home outright so there are no housing costs (and if you have yet to retire, that should be an overarching goal by the time you do).

The main difference between the two standards of living is the odd restaurant meal, an annual holiday and private health insurance.

And the last of these is where the increases particularly eat into a retirement income.

Health insurance premiums rose again on April 1, by an average 2.9 per cent (delayed by some health funds). Meanwhile, the out-of-pocket expenses of many medical services are also increasing.

Other items particularly pressuring purse strings are fruit and vegetables, 5.8 per cent higher in just three months, and fuel, up 4.2 per cent over the past quarter.

That takes the latter to a painful 32.1 per cent annual cost impost.

How much do you need for a comfortable retirement?

ASFA has long said that at retirement at age 67, a couple requires $640,000 between them to fund a comfortable retirement.

A single person requires $545,000.

Note this is not much less because of shared housing costs as a couple - a shared roof can cut costs by as much as half.

But in both cases, it is far less than the $1 million cost of retirement often bandied around because it assumes that you draw down, gradually, all your money.

It also assumes that as you do so, you qualify for more and more pension.

And that’s the key to combating the current price squeeze… getting this equation corrected.

Officially.

The call that could get you comfy again

Centrelink re-assesses your assets and pension eligibility once every year.

But you can request a ‘balance review’ at any time.

And if your super has fallen, and times are suddenly tight, you should.

The allowable asset limits for a full age pension increased again on July 1.

A home-owning couple can have $419,000 combined while a non-home-owning couple can have $643,500.

Meanwhile, a home-owning single can have $280,000 and a non-homeowning single can have $504,500.

But even if you have more than the thresholds above, you may have long been – or may now be – eligible for a part pension.

In any case, an assets update could well see an immediate jump in your pension that helps meet the higher-than-normal price hits.

You can ask for an update to your assets on the Centrelink section of MyGov, by simply calling Centrelink (132 300) or by going into a branch.

Yes, if you do one of the last two, you will probably need to set aside a couple of hours.

But remember, for every $1,000 your asset values reduce, you will get an increase of $3 per fortnight in your age pension.

It’s a couple of hours’ work for a pay rise that could cover your escalating costs.

Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, Twitter and Instagram.

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