How does it affect you? If you’re retired or close to retiring, the idea of paying more for everyday items can cause concern. In 2019, the average life expectancy in Australia was close to 83 2 , so with most professionals typically retiring between 62 and 65 3 , that’s around 20 years that your nest egg needs to last you. According to the Association of Superannuation Funds of Australia (ASFA) , the annual amount needed for a comfortable retirement in the December quarter of 2021 was $64,771 for couples and $45,962 for singles.
How does inflation affect investment markets?
Higher inflation can often lead to rising interest rates as central banks try to dampen demand for money – indeed, the Federal Reserve in the US has already flagged it’s plans to increase rates several times over the remainder of 2022. 4 But at the time of writing, (May 2022) the Reserve Bank of Australia is being more cautious, with ClearView Chief Investment Officer Justin McLaughlin recently commenting that the idea of significant rate rises in the next year was “unrealistic” due to current Australian household debt levels.
The Federal Reserve in the US has already flagged plans to increase [interest] rates several times over the remainder of 2022”
How can you offset the effects of inflation?
From an investment perspective, it’s important not to take too many risks to try and compensate for inflation. A survey of over 5000 retirees from National Seniors Australia noted that around 1 in 4 retirees couldn’t tolerate a negative annual return of any kind in their portfolio, with the majority of respondents saying they were unwilling to take a loss of more than 10% in a year. 5 It’s a good idea to discuss your options with your adviser and potentially look at some active management strategies for countering inflation while keeping your risk tolerance in mind. On the spending side of things, you could consider adopting some simple strategies to temporarily reduce your cost of living. For instance, cooking at home more and eating out less, and planning your meals for the week to ensure less food wastage are good ways to cut down on your recreation and food budgets. Take a look at what you currently pay for things like utilities as well, and consider switching providers if you can get a better rate elsewhere. You could also consider new strategies to bring in some income, such as renting out a spare room or car parking space on your property that you’re not currently using.
If you’re concerned about the effect of inflation on your portfolio, Speak to your adviser today. Call us on 132 977 or visit clearview.com.au .
1 ‘Inflation hits 3.5%, but it won’t budge the Reserve Bank on interest rates’. The Conversation, 25 January 2022. 2 Source: Australian Institute of Health and Welfare 3 What is the Retirement Age in Australia? SuperGuide.com.au, January 2021 4 ‘Fed pivots towards jumbo hikes after being slammed as too slow’. Bloomberg, 29 March 2022 5 Your retirement savings, risk tolerance and loss aversion. National Seniors Australia, 28 February 2022
Viewpoint Edition 2 2022 • 9
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