Is your super balance growing fast enough to keep up with rising living costs?

Superannuation funds generally make an annual return of 7% over long term.

Man looking at his grocery receipt, symbolising inflation.

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I recently came across this humorous insight: 'My wallet is like an onion. Opening it makes me cry.' This perfectly captures the challenges of managing expenses as living costs continue to rise.

Recent statistics show that inflation is eroding purchasing power, making it crucial to ensure your super balance is growing at a pace that will support a comfortable retirement.

This raises an important question: Is your superannuation balance growing fast enough to keep up with rising living costs?

How much has inflation impacted living costs in retirement?

In May, the Association of Superannuation Funds of Australia (ASFA) published the ASFA Retirement Standard report for the March 2024 quarter.

According to the ASFA report, the cost of funding a comfortable lifestyle rose 3.3% from a year ago to a record high of $72,663 per year for couples and $51,630 per year for singles.

ASFA CEO Mary Delahunty says:

Retirees continue to feel considerable cost of living pressure on their household budgets. Fortunately, in the past three months, we've seen the pace of price rises ease somewhat in key spending categories, namely food and fuel.

Here are the key points from the report by spending category:

  • Medical and hospital services increased by 2.3% in the March 2024 quarter, higher than the 1.2% rise in the previous quarter.
  • Insurance prices rose sharply by 3.7% from the previous quarter and 16.4% annually, driven by higher reinsurance and claims costs, marking the strongest annual increase since 2001.
  • Annual food costs increased by 3.8%, down slightly from 4.5% in the previous quarter. Bread and cereal prices rose by 7.3% annually, and dairy products by 4.1%, partially offset by a 0.7% decrease in meat and seafood prices over the quarter.
  • Automotive fuel prices decreased by 1.0% on average in the March quarter, with an average unleaded petrol price of $1.94 per litre.
  • Electricity prices rose moderately by 2.0% annually, but excluding Energy Bill Relief Fund rebates, prices increased by 17.0% over the period, impacting many self-funded retirees.
  • Domestic travel and accommodation costs increased by 1.3% in the quarter, reflecting sustained demand and elevated prices for domestic accommodation and airfares.

Investment returns in superannuation

The good news is that the average investment returns from superannuation funds have generally kept pace with inflation.

ASFA estimates that, based on historical data, superannuation funds achieved an average annual return of 7.4% over the last 10 years to June 2023. This comfortably exceeds the average consumer price increase of 2.8% during the same period.

Period (% pa)Fund returns to June 2023Real returns (vs CPI)
1 year9.2%3.0%
5 years5.8%2.3%
10 years7.4%4.6%
20 years7.1%4.3%
30 years7.3%4.5%
Super fund returns published in the September 2019 issue of Superfunds magazine and ASFA estimates.

These average returns include all asset classes, such as shares, bonds, and alternative investments. Interestingly, the average return is similar to that of the Vanguard Australian Shares Index ETF (ASX: VAS), which delivered 7.85% per year over the last 10 years to May 2024.

While real returns, meaning the growth in purchasing power, are under pressure, the golden rules for a comfortable retirement remain simple: spend less, save more, and keep investing.

Motley Fool contributor Kate Lee 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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