Inflation is eroding the incomes of retired Australians with the costs of a comfortable retirement rising 6.7 per cent for a single person and 6.6 per cent for a couple in the year to September 30, according to the Association of Superannuation Funds of Australia (ASFA).

But while that’s not great news for retirees, those living costs rose less than the consumer price index which was up 7.3 per cent for the same period.

Some of the cost increases behind the figures include fruit and vegetables up 16.2 per cent, and dairy products up 12.1 per cent. Much of those increases were a result of consistent big wets which hit farming output.

The international energy crisis hit hard, with auto fuels rising 18 per cent and household gas up 16.6 per cent.

As a result of the increases, ASFA estimates the weekly costs of living in the above table now apply to various categories of retirees.

To meet the costs of a comfortable retirement, ASFA estimates a couple now needs a retirement nest egg of $640,000 as well as a home while a single person needs $545,000. For those without a home, $200,000 should be added to the lump sum, Paramount Financial Services says.

Those figures demonstrate the advantages of being in a couple for cost sharing in retirement. For a modest lifestyle both singles and a couple need $70,000 in savings, ASFA says.

Double blow

If we look at retirement savings over the year to September we find that the average balanced fund lost 5.7 per cent in value. If you add that to the 6.6 per cent cost-of-living rise for a comfortable couple, they are actually 12.3 per cent worse off if their only savings are in superannuation.

But such short-term views don’t reflect the long-term value of superannuation savings. Chant West’s Mano Mohankumar says the medium growth or balanced fund rose in value by 2.6 per cent in November so super returns have come off that low point reached in the year to September.

Nonetheless, the situation has changed since interest rates started to rise early this year. That means if you are in the run-up to retirement, then Alex Dunnin, the director of research at Rainmaker, says “you might decide you need a higher super balance than you thought you would”.

“It could be the time to delay retirement for a year or two. The job market is strong so you should be able to find extra employment if you need it,” Mr Dunnin said.

Despite the return of inflation and super returns falling with markets, ASFA deputy CEO Glen McCrea says Australians are comparatively well placed for retirement.

“We can take some solace from the fact that the investment we’ve made in superannuation over the last three decades is acting as a buffer in the face of these strong headwinds,” Mr McCrea said. Indeed.

Australians looking good

In Europe and the UK, governments are considering slashing pension payouts and raising the retirement age, while in Australia the age pension remains affordable and “retirees on average have larger private retirement savings balances than in most countries in the world,” Mr McCrea said.

So check your super balance using ASFA’s Super Guru tool to get a picture of the adequacy of your balance and work out if you can spend more.

“A lot of people die with almost as much in super as they retired with,” Mr Dunnin said.

There are two things people can do to take account of inflation and the hits taken by super funds. One, says Mr Dunnin “is pay down debt, get organised and cut back your spending”.

Until March this year when inflation started to emerge, it made sense for some retirees to retain a home mortgage costing 3 per cent or better and enjoy superannuation returns of somewhere between 6 and 8 per cent.

But “those days are gone,” Mr Dunnin says. With home loan rates heading for 6 per cent and super returns in negative territory over the last year it makes sense to use super to pay down your mortgage and avoid rising interest costs.

Also, now is a good time to look at where your super is invested. For many people keeping their money in a low cost, not-for-profit industry or public sector fund will deliver better returns over most time periods as this chart below from Industry Super Australia demonstrates.

Industry sector outperforms

There are a couple of reasons the industry sector has been able to outperform. One is that the sector, along with public sector and corporate funds, do not have to pay dividends to for-profit owners like banks and finance houses.

Another is their increased holdings of unlisted investments which avoid the costs of being listed on public exchanges and having to service a large number of shareholders. Unlisted assets tend to be owned by a few big investors which are cheaper to service and their prices do not fluctuate as wildly as listed investments.

Over the past year, industry super funds’ holdings of unlisted property increased by 31 per cent. Their holdings of unlisted domestic infrastructure increased by 44 per cent while holdings of unlisted international infrastructure increased by 46 per cent, according to Industry Super Australia.

So now could be a time to look at where your super is invested and make sure your fund is a top performer. If not, then you could look to make a change.

There is something else important to remember in the current environment, Mr Dunnin says.

“Don’t panic! People who move their investments to cash during market shocks usually don’t switch back to growth before the markets turn up and end up losing big time as a result.”

The New Daily is owned by Industry Super Holdings