How to Protect Your Retirement Fund From Inflation

Inflation and Retirement

Protect Your Retirement Fund From Inflation

Inflation rates are soaring in many parts of the world, including in advanced economies, mainly because of the impact on the supply chain and the economy as a whole brought about by the pandemic. Forecasts are predicting record high inflation rates of about 5% in the US and 3% in most parts of Europe.

While this is a worrying development for people across all age groups, this is has a bigger impact on retirees as this means lesser buying power for the retirement fund that you have already accumulated to date. Inflation means that the cost of living increases over time, thus the money that you have now would be able to pay for less amount of goods and services in the future. This is a normal economic occurrence, just that the rates would vary depending on the country’s economic performance within that certain period.

For this reason, inflation is a key factor that should be taken into consideration when you start planning for your retirement. Remember that your retirement fund is meant to ensure that you have a comfortable life after you stop working, a time when you can no longer rely on a regular salary or income. Your fund should be able to support not only your necessities like food, shelter and healthcare, but also your leisure and entertainment expenses, as well as cover any emergencies that may happen.

The earlier you prepare for retirement, the more time you have to accumulate wealth and increase your net worth. However, the passing years could also eat up at your assets due to the effects of inflation.

To ensure that you get the retirement life of your dreams, here are steps you can take to protect your retirement fund from inflation:

  1. Don’t Hoard Your Cash

Building up your savings and stacking up cash may seem like a good idea up front, but it will work against you in the long term. This is because the interest rate of a savings account in the bank is much lower than the rate of inflation every year. If you just keep your money in the bank without re-investing it, you will lose a big chunk of its value by the time you retire.

Financial advisors usually recommend to just keep enough cash to cover your living expenses for as much as six months, which includes any monthly mortgage or loan payments, then add a little buffer for emergencies. The rest of your money should be allocated for investments which would enable you to grow your funds faster than the increase in cost of living.

  1. Diversify Your Portfolio

Of course all investments have corresponding risks, and typically, those that offer higher returns also pose higher risk of losses. One way of managing this so you won’t lose all your life’s savings is to spread your money across several investment vehicles with different risk levels. This way, you can balance out the ratio of risk versus rewards or returns.

Depending on your financial goals and risk appetite, you can opt to allocate a bigger chunk of your funds in risky ventures like stocks since they have higher potential returns. It is a good idea to do this if you still have a few years left prior to retirement. This is because you still have enough time left to regain your earnings or to wait for a better market performance should you suffer losses from a market downturn.

You can also choose stocks that offer dividends which could give you additional passive income aside from the gains that you will get from the increase in stock value. The rest of your funds should then go to other investments such as treasury bills, bonds, and mutual funds, or even cryptocurrency such as bitcoin which offer lower returns but pose lower risks for you as well.

  1. Maximize Your Assets

When considering your investments, don’t just look at your cash savings. Some of your assets can also be leveraged to generate additional income for you. If you own a property in a good location, you can look into getting a reverse mortgage.

A reverse mortgage or home equity conversion mortgage is a financial instrument offered specifically to people nearing retirement. This allows them to get a loan against their property, and the loan-able amount varies depending on several factors such as age of the borrower, value of the property used as collateral, the lending limit, and running interest rates. To get an estimate of your possible loan amount, you can get a quick assessment here :

The loan amount can then be re-allocated into your investment portfolio, thus increasing the amount that you can infuse for various platforms. When you top up your investments, you also have better chances of receiving higher returns in the future, which will balance out the diminishing asset values brought about by inflation.

About Sashi 552 Articles
Sashi Singh is content contributor and editor at IP. She has an amazing experience in content marketing from last many years. Read her contribution and leave comment.

Be the first to comment

Leave a Reply

Your email address will not be published.