Is your superannuation keeping up with the cost of living crisis?

Superannuation is an integral asset. How is inflation affecting things?

Man looking at his grocery receipt, symbolising inflation.

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The superannuation system is a key asset for helping people fund their retirement. But with all of this inflation, investors may wonder if their nest egg is still on track.

For many people, the retirement phase of their lives can be many years, perhaps decades. Therefore, we need to ensure the superannuation balance lasts as long as possible.  

Inflation reduces the buying power of a dollar. We need to ensure that this cost-of-living crisis doesn't detrimentally affect our purchasing power in retirement by harming our superannuation-building efforts.

Aussies are worried about the financial impacts

According to research from Findex, four in five Australians (81% of people) have changed their investment and saving goals in the past year, with the primary reason for the shift being to 'make ends meet and or rising costs of living' (44% of people).

Who is feeling it the most? The younger Australians. Around 90% of Gen Z and 87% of millennials have de-prioritised investing and saving because of cost of living pressures.

The trouble is that inflation is likely increasing how much we'll need in retirement to pay for goods and services in our golden years.

Findex says more than four in five (83% of people) say the rising cost of living has had a "significant or some adverse impact on their confidence in achieving the amount they think they need for a comfortable retirement."

On average, Australians believe they will need $1.13 million in superannuation for a comfortable retirement at age 67.

Currently, the AFSA Retirement Standard suggests a couple will need a superannuation balance of $690,000 and a single person will need $595,000 for a comfortable retirement. That amount is, in my opinion, likely to keep rising in the coming years.

What can people do to help their superannuation?

It's a tough time for many households, so keeping food on the table and a roof over our heads is the most important thing.

Everyone who earns a wage is (hopefully) receiving mandatory (concessional) superannuation contributions, which is a percentage of the amount of wages earned. These contributions can keep building the balance, even if no extra money is invested inside or outside superannuation.

Over the ultra-long-term, 'growth' assets can typically outperform defensive assets like cash and bonds because of their capital growth and compounding potential. So it could be useful for Aussies in the accumulation phase to allocate their nest egg to the superannuation fund's 'growth' option rather than the defensive option (or even balanced, depending on how much that option allocates to defensive assets).

If Aussies have plenty of excess cash flow in their personal budgets, increasing superannuation contributions could be advantageous because of the tax savings and compounding ability. Of course, this should be balanced against thoughts of home ownership and possibly paying down the mortgage.

Aussies don't need to invest inside superannuation. The money is locked away for retirement for potentially decades, whereas investing in (ASX) shares outside of superannuation can mean being able to access the capital/dividends instantly.

I'm investing outside of super and also building up my superannuation balance through regular concessional contributions.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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