How War and Inflation Are Threatening Australian Retirement Savings in 2026

Your Super Is Under Pressure. Here’s What to Know.

If you’ve checked your superannuation balance recently, you probably didn’t like what you saw.

The ASX 200 has fallen to its lowest level since May 2025, shedding roughly 8-10% from its February highs. Global share markets are similarly bruised, with Wall Street weighed down by war fears and rising interest rate expectations. Bond markets are volatile. The Australian dollar has weakened. And inflation is heading sharply higher.

For the 16.8 million Australians with superannuation, this creates a challenging moment. Your balance is likely down. The cost of everything is up. And the natural instinct, to do something, anything, might be the worst thing you can do.

This article breaks down what’s actually happening to super balances, what it means depending on where you are in life, and the specific steps worth considering right now.

What’s Happening to Super Balances

The Market Impact

Superannuation funds invest across a mix of asset classes. A typical “balanced” or “MySuper” option, where most Australians’ default contributions go, holds roughly:

For a balanced fund member, the combined impact in March 2026 is an estimated decline of 4-6% in portfolio value.

What That Means in Dollar Terms

The important context: despite a painful March, most balanced super funds delivered solid returns over the 12 months to February 2026. Superannuation returns for the 2024-25 financial year averaged 8-11% for balanced options (Chant West, SuperRatings data). A 4-6% pullback, while uncomfortable, hasn’t wiped out the prior year’s gains.

The Inflation Erosion

Market losses are only half the story. Inflation erodes the purchasing power of your super balance, even when nominal returns are positive.

Consider this: if your super earns 6% in a year but inflation is 5.5%, your real return is just 0.5%. Your balance grew in dollar terms, but its buying power barely moved.

For retirees drawing down super to fund living expenses, the combination is particularly harsh. Your balance is shrinking from withdrawals. Market losses reduce it further. And the money you do withdraw buys less because everything costs more.

Over a multi-year period of high inflation, the compounding effect is significant. Three years of 5% inflation reduces purchasing power by approximately 14%.

Why This Downturn Is Different

Not all market corrections are the same. The current environment has several features that make it unusual:

1. It’s Supply-Side Driven

Most recent market downturns (COVID crash, tech correction) were either demand shocks or valuation adjustments. The current crisis is fundamentally a supply disruption. The Strait of Hormuz blockade has physically restricted oil supply. You can’t solve a supply problem by cutting interest rates or stimulating demand. This makes the outcome more dependent on geopolitical resolution than economic policy.

2. Inflation Is Rising While Markets Fall

Typically, falling markets coincide with deflationary pressures (less spending, lower prices). This time, markets are falling while inflation is accelerating. This is the stagflation dynamic, and it’s particularly difficult for balanced portfolios because both shares and bonds can underperform simultaneously.

In a normal disinflationary downturn, bonds rally as interest rate expectations fall, offsetting equity losses. In a stagflationary environment, bonds can fall too (as rates rise to combat inflation), leaving fewer places to hide.

3. The RBA Is Tightening Into Weakness

The RBA raised rates in both February and March 2026, and markets are pricing in further hikes. This means policy is actively making financial conditions tighter at a time when the economy is already under pressure from external shocks. For super funds, this means the usual recovery catalyst (rate cuts) is not on the horizon.

4. Australian Dollar Weakness

The Australian dollar has weakened against the US dollar amid risk-off sentiment and higher oil import costs. For super funds with unhedged international share exposure, this provides a partial buffer (overseas investments are worth more in AUD terms when the dollar falls). But it also means imported goods cost more, adding to inflation.

What to Do Based on Your Life Stage

If You’re Under 40 (20+ Years to Retirement)

Short answer: Almost certainly nothing.

This is the hardest advice to hear when you’re watching your balance drop, but it’s backed by decades of evidence. A person with 20 or more years until retirement will live through multiple market cycles. Every major downturn in Australian super history, the GFC, the COVID crash, the tech wreck, was followed by a recovery that exceeded the prior peak.

The data from the GFC is instructive:

Source: Chant West, SuperRatings historical analysis

The worst thing a young super member can do in a downturn is switch to cash. By the time the news is bad enough to trigger the switch, most of the loss has already occurred. And the recovery, which often comes suddenly and sharply, gets missed entirely.

What you can do:

• Increase voluntary contributions if cash flow allows. You’re buying assets at lower prices. The concessional (before-tax) cap is $30,000 per year for 2025-26. If you haven’t used the full cap, salary sacrificing additional amounts is tax-effective (contributions taxed at 15% versus your marginal rate).
• Check your insurance. Market downturns are a reminder that income protection and life cover within super matter. Ensure your coverage is adequate for your circumstances.
• Review your investment option. Not to switch to cash, but to ensure you’re in a growth-oriented option that matches your long time horizon. Many younger members are in a balanced default when a high-growth option would be more appropriate.

If You’re 40-55 (10-20 Years to Retirement)

Short answer: Review, don’t react.

You still have time on your side, but the margin for error is smaller. A prolonged downturn combined with high inflation could materially affect your retirement outcome if your portfolio isn’t appropriately positioned.

What you can do:

• Check your asset allocation. Ensure it reflects your risk tolerance and timeline. If you’re uncomfortable with the current volatility, a slight shift toward a balanced option (if you’re in high growth) may be appropriate. But don’t swing to the extreme.
• Maximise concessional contributions. If you haven’t fully utilised your $30,000 cap, or have unused carry-forward amounts from years when your total super was below $500,000, now is an excellent time to top up. You’re getting a tax deduction and buying assets at lower valuations.
• Consider your super fund’s performance. Not in the last month (that’s noise), but over 5-10 years. If your fund has consistently underperformed peers, this is a reasonable time to research alternatives. Comparison tools from APRA’s YourSuper portal allow direct fee and return comparisons.
• Model your retirement. Use ASIC’s MoneySmart retirement calculator or consult a financial adviser to project whether your current balance and contribution rate will deliver the retirement income you need, factoring in higher inflation scenarios.

If You’re 55-67 (Within 10 Years of Retirement)

Short answer: This is where professional advice matters most.

The sequence of returns risk, the risk that poor returns early in retirement permanently reduce your income, becomes critical in this window. A significant loss just before or just after you retire can have lasting consequences.

What you can do:

• Review your investment option carefully. Many super funds offer “lifecycle” options that automatically shift to more conservative allocations as you age. If you’re in a growth option, consider whether a balanced or moderate option better suits your proximity to retirement.
• Don’t try to time the market. The evidence is overwhelmingly against it. But a strategic, planned shift in asset allocation (not a panic switch) is reasonable if your current allocation doesn’t match your risk tolerance.
• Consider a transition to retirement (TTR) strategy. If you’ve reached preservation age (currently 60 for most Australians), you can access a TTR pension while still working. This can provide tax benefits and income flexibility. However, the rules are complex, and a financial adviser or SMSF specialist should be involved.
• Model different scenarios. What does your retirement look like if markets stay flat for three years? What if inflation averages 5% for two years? What if the RBA raises rates to 5%? Understanding these scenarios helps you make informed decisions rather than emotional ones.

If You’re Already Retired

Short answer: Focus on spending, not the balance.

Retirees drawing an account-based pension from super are directly affected by market losses, as their balance funds their income. The key question is sustainability: will your super last?

What you can do:

• Review your drawdown rate. The minimum pension drawdown rates set by the government increase with age (4% at age 60-64, rising to 14% at 95+). If you’re drawing more than the minimum, consider whether you can reduce to the minimum during the downturn to preserve capital.
• Maintain a cash buffer within super. Many retirees keep 1-2 years of pension payments in cash or term deposits within their super fund. This means you can meet income needs without selling growth assets at depressed prices.
• Review Centrelink entitlements. If your super balance has fallen, your assets test position may have improved, potentially increasing your Age Pension entitlement. The full Age Pension is $1,144.40 per fortnight for singles and $1,725.20 for couples (March 2026). Assets test thresholds are $301,750 for homeowner singles (full pension) and $451,500 for homeowner couples.
• Be cautious about Centrelink deeming. Even if your actual investment returns are negative, Centrelink “deems” your financial assets to earn a set rate for income test purposes. The current deeming rates are 0.25% on the first $62,600 (singles) and 2.25% above that. This means your deemed income may exceed actual income during a downturn.

SMSF Trustees: Special Considerations

Self-managed super fund trustees have more control over investment decisions but also more responsibility. The current environment presents both risks and opportunities.

Risks for SMSF Portfolios

• Concentrated portfolios: SMSFs are more likely to hold concentrated positions (e.g., a large allocation to a few ASX stocks or a single property). Concentrated portfolios amplify both gains and losses.
• Illiquid assets: SMSFs holding direct property or unlisted investments may face valuation challenges. Property valuations should be reviewed annually, and in a falling market, carrying inflated valuations can create compliance issues.
• Limited recourse borrowing arrangements (LRBAs): SMSFs with property loans are exposed to rising interest rates just like personal mortgages. If the property is negatively geared within super, cash flow pressures can emerge quickly.

Opportunities for SMSF Trustees

• Term deposits: With rates at 4.8-5.2% for 12-month terms, parking a portion of the portfolio in term deposits provides a guaranteed nominal return well above zero, with capital security.
• Government bonds: Australian Government Bonds are yielding 4.0-4.5%, offering income and potential capital gains if rates eventually fall.
• Dollar-cost averaging: SMSF trustees with regular contribution inflows can benefit from purchasing shares and other growth assets at lower prices during the downturn.
• Gold: Gold has been a strong performer during the conflict period, serving as a traditional safe haven. Some SMSF trustees are increasing gold exposure through ETFs (e.g., GOLD.ASX, PMGOLD.ASX).

Compliance Reminder

SMSF trustees must ensure their investment strategy is documented, reviewed annually, and consistent with the fund’s objectives. The ATO has flagged that market dislocations can trigger non-compliance if:

• Asset allocations drift significantly from the documented strategy without a formal review
• Members are paying pensions from a fund with insufficient liquidity
• In-house asset rules are breached (maximum 5% of fund assets)

If you’re unsure whether your SMSF investment strategy needs updating, consult an SMSF specialist adviser.

The Long View: Why Panic Is Your Enemy

It’s worth zooming out. The Australian superannuation system has weathered significant crises:

Every one of these events felt like the end of the world at the time. Every one was followed by a recovery. The super system’s long-term average return for balanced funds is approximately 7-8% per annum over 20-year periods, well above inflation.

The members who achieved those returns were the ones who stayed invested. The ones who switched to cash at the bottom, or stopped contributing during downturns, permanently impaired their retirement outcomes.

Getting Professional Advice

The current environment is complex enough that generic guidance has its limits. If you’re within 15 years of retirement, have an SMSF, or are already drawing a pension, speaking to a qualified financial adviser is one of the highest-value actions you can take.

A good adviser will:

• Model your specific situation under multiple scenarios (different inflation rates, market returns, and interest rate paths)
• Review your asset allocation against your actual risk tolerance, not the one you thought you had when markets were rising
• Identify tax-effective contribution strategies
• Ensure your SMSF (if applicable) is compliant and appropriately diversified
• Help you avoid the costly emotional decisions that downturns so often trigger

The cost of advice is almost always less than the cost of a poorly timed panic decision.

Connect with a Super Specialist

WealthWorks connects you with verified Australian financial advisers and SMSF specialists who can help you navigate market volatility, review your retirement strategy, and ensure your super is positioned for the long term.

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