Most Australians know that superannuation is a government-mandated method of saving for retirement. You can make voluntary contributions to your super, but the bulk of it generally comes from employer contributions. Fewer Australians understand how inflation can affect their super. So, to help shed some light on this topic, we’ve put together this piece covering all the basics you need to know:
Your Product Can Impact How Much You’re Affected
The impact of the current crisis will differ depending on the super product that you have. Those with a self-managed super fund will generally receive guidance from their SMSF accountant on managing their retirement fund during uncertain times. However, if you have a standard super account, the fund will usually take care of this on your behalf.
You Might Lose Money
It’s also important to be aware that you may see a decrease in your super balance during periods of economic instability. This is because a significant chunk of your super is probably tied up in investments, and as we’ll get into later, investments can experience substantial shifts during times like these.
Though it can be tempting to check your super balance daily if you feel like it’s dwindling, this is a mistake. Instead, you need to understand that it’s a long-term investment that will recover when the markets do.
Government Assistance Won’t Stretch Very Far
Another thing to be mindful of is that financial support, such as government benefits, may not be as effective as it once was at helping you cover your daily cost of living. As you might expect, this problem is more of an issue for those drawing from their super, as they may need to pull more out. However, it can also impact those still building their super for their future.
If you’re not receiving government support, this issue is still worth understanding as it can inform your retirement strategy. For example, you could contribute more to your super fund to hedge against rising living costs and the fact that government assistance may not be sufficient in the future.
Your Money Is Worth Less
While your money may be worth the same as it always has at face value, inflation dramatically reduces the actual value of your funds. This is an important thing to consider, whether you’re currently using your super or still saving for your future.
Those already drawing from their retirement fund must understand that it will not go as far during these strange times. As a result, you may need to adjust your spending. On the other hand, those still building their super will see decreased benefits from compound interest, which can significantly impact their financial futures.
Investments Are Less Stable
Finally, the types of investments you hold within your super may be less stable during periods of high inflation. This instability is due to the economic unrest that tends to come alongside soaring inflation. For example, many people lose their assets and ability to keep up with the cost of living, which can have flow-on effects for the rest of the community.
The good news is that you can hedge against this risk by choosing investments that offer higher returns. You might even make a profit, but it is essential to remember that investing at any level – either with your accessible funds or your super – carries risk. It should always be discussed with a professional who knows what they’re doing.
Now that you know how inflation can impact your super, you’re better equipped to deal with the current economic uncertainty. We wish you the best of luck!