The hidden impact of inflation on your retirement
Inflation is often called the hidden thief of retirement savings. It may not feel as worrying as market volatility but over time it can be just as damaging, quietly eroding your purchasing power by reducing the real value of income and savings.
0 minute read
Based on New Zealand’s Consumers Price Index (CPI), historic data shows how inflation can add up over time. In New Zealand, something that cost $100 at the beginning of 2006 would cost around $167 today (20 years later).
If you're retired or approaching retirement, understanding how inflation works - and what you can do about it - can play an important role in supporting your financial wellbeing during your golden years. Over a multi-decade retirement, rising prices mean a fixed pool of savings will buy significantly fewer goods and services as time goes on. It's often a slow process, making it easy to overlook.
1. The real impact on your purchasing power
Over a multi-decade retirement, rising prices mean a fixed pool of savings will buy significantly fewer goods and services as time goes on. It's often a slow process, making it easy to overlook. For retirees with term investments, this is one of several factors worth considering. While term investments often play an important role in a retirement strategy, their returns may not always keep pace with inflation, which can affect how far savings go over time.
Tip: Some people find it helpful to map out their current monthly expenses and consider how they might look in 10 or 20 years' time. Even a rough picture can help you plan for what's ahead, rather than reacting to it.
2. Why retirees are often hit harder
Inflation doesn't affect everyone equally. Unfortunately, it often hits retirees harder than the average household.
Recent New Zealand data shows that costs that matter to retirees, including health insurance, electricity and rates, have increased strongly and contributed more to living-cost pressures for superannuitant households than for the average household.
On top of that, discretionary spending - things like travel, dining out, and leisure - also increase in price over time. When you have fewer options to generate new income, these rising costs can squeeze your budget in ways that are hard to absorb. Understanding where your money goes is the first step to preparing for how rising prices may affect your situation.
Tip: It can be useful to understand the costs that matter most to you, not just the headline inflation number. Your personal rate of inflation – the rate at which your own everyday costs are rising – may be higher or lower than the average, depending on what you spend most of your money on. For example, if a larger share of your budget goes towards essentials like groceries, power, insurance or healthcare, your experience of inflation may feel quite different from the official figure. Understanding that difference can help you plan more effectively and make more informed decisions about your spending and savings.
3. Looking after your retirement savings
The good news is that, while you can't control inflation, there are practical steps you can take which may help to manage its impact on your savings.
Growth assets may play a role
Conservative or income-focused investments such as term deposits, cash or fixed interest might feel more comfortable, but over time they may not always keep pace with inflation. If you’re approaching retirement or already in retirement, it can be worth checking whether your current investment fund still suits your needs, taking into account your personal circumstances, goals and tolerance for risk. Growth assets may play a role for some people, but they won’t be suitable for everyone.
Adjust your withdrawals over time
When it comes to spending in retirement, some common rules of thumb can offer a useful starting point, but they don’t always account for how inflation may change over time. Retirement isn’t static, and your withdrawal approach doesn’t need to be either. Reviewing how much you’re drawing from your savings from time to time can help you respond to changing costs and feel more confident about the years ahead. An annual check-in can help you see how your withdrawals sit alongside inflation and how your remaining funds are tracking.
Create a plan – and keep it current
Having a clear retirement plan can help you prepare for the effects of inflation. Start by understanding what you're entitled to and how NZ Super works by exploring tools at sorted.org.nz /tools/retirement-navigator which will help you see how different spending approaches hold up against ongoing inflation.
NZ Super is adjusted over time, but it may not always reflect the way your own living costs change. It can be helpful to plan for how your other savings and income sources might help fill any gap. Consider setting up a regular reminder to revisit your plan and make sure it still reflects your needs, goals, and lifestyle. Small adjustments along the way are much easier than big changes later on.
Get advice if you need it
If you're unsure how inflation may affect you, speaking with a financial adviser can help you better understand your options. They can also help you put changing costs in context and see how they may affect your plan over time. For some people, that can provide added reassurance and peace of mind.
Tip: Taking a little time to check in on your plan each year, whether on your own or with professional support, can make future changes feel more manageable.
Bringing it all together
Retirement should be about enjoying the life you've built — not worrying about whether your money will keep up.
Inflation is a challenge, but it's not one you have to face unprepared. A little awareness, a good plan, and the right support can go a long way towards keeping you on track and feeling confident about your future.
BNZ Investment Services Limited, a wholly owned subsidiary of Harbour Asset Management Limited, is the Issuer and Manager of the BNZ KiwiSaver Scheme. Download a copy of the BNZ KiwiSaver Scheme Product Disclosure Statement PDF 1.1MB, or pick up a copy from a BNZ branch.
Investments in the BNZ KiwiSaver Scheme are not bank deposits or other liabilities of Bank of New Zealand (BNZ) or any other member of the National Australia Bank Limited group. They are subject to investment risk, including possible delays in repayment. You could get back less than the total contributed. No person (including the New Zealand Government) guarantees (either fully or in part) the performance or returns of the BNZ KiwiSaver Scheme or the repayment of amounts contributed. National Australia Bank Limited, the ultimate owner of BNZ, is not a registered bank in New Zealand but a licensed bank in Australia and is not authorised to offer the products and services mentioned on this webpage to customers in New Zealand.
BNZ Investment Services Limited (BNZISL) uses the BNZ brand under licence from Bank of New Zealand, whose ultimate parent company is National Australia Bank Limited. No member of the FirstCape group (including BNZISL) is a member of the NAB group of companies (NAB Group). No member of the NAB Group (including Bank of New Zealand) guarantees, or supports, the performance of any member of FirstCape group’s obligations to any party.
The information contained in this article is provided for general information only and is a summary based on selective information (which may not be complete for your purposes and does not take into account your individual circumstances). It is not financial or other professional advice. Any statements as to future matters are inherently uncertain and are not guaranteed to be accurate or reliable. For help, please contact BNZ or your professional adviser.
References to third party websites are provided for your convenience only. BNZ accepts no responsibility for the availability or content of such websites.
Neither Bank of New Zealand nor any person involved in this article accepts any liability for any loss or damage whatsoever which may directly or indirectly result from any opinion, information or representation or omission, whether negligent or otherwise contained in this article.