Retirement income

Impact of inflation

Since it's likely that your retirement will last 20 years or more (assuming you retire at 65 or younger), there's a good chance that your retirement will be affected by inflation.

Inflation is a general increase in prices over time, reducing the purchasing power of your money.

Example:
With an inflation rate of 2.5% per annum, the purchasing power of a dollar is almost halved over 25 years. At that rate of inflation, a loaf of bread that costs $3.43 today1, would cost $6.36 in 25 years.

Over time, inflation can erode the value of the income you receive from your investments in retirement, making it more difficult to maintain your desired standard of living.

Since your money will typically be invested over the long term, if you are invested directly or indirectly in shares (e.g. via a managed fund) you will also usually face movements in markets which can impact your investment balance and therefore your income.


Footnote

1. Australian Bureau of Statistics, Average Retail Prices of Selected Items, Eight Capital Cities, June 2011.