Blog

Retirement years are also popularly known as the golden years, perhaps because this is the period people wait to spend in a relaxed and calm way after pursuing a long and successful professional career. The primary goal of the majority of individuals nearing retirement is to have sufficient funds in their name so that they have the economic autonomy to do whatever they want to. We often begin planning for our retirement from an early stage of our career as we think more time will allow us to gain more savings for the golden years. But, stay notified as inflation has some news to do with your retirement savings. Inflation is a crucial component when it comes to planning for any kind of pecuniary goal. Retirement savings are no exception. Besides, many even simply ignore what inflation is capable of doing to their retirement savings. In this article, we will explore the different facets through which inflation affects our retirement savings and whether there are ways to tackle them efficiently.

Those who are familiar with the banking economic system know about inflation. In the simplest way, inflation is basically the rise in prices of commodities and services within an economy. It is not just about the price increase of a particular group of commodities or services but the overall price surge of almost all consumable services and goods in a country. Nowadays, inflation has become a common economic issue, not only for any particular country but for the entire globe. Without a doubt, such a price upsurge of goods and services takes a toll on the pockets of the general masses. When inflation is at its peak, people are impacted by reduced purchasing ability. What happens is that when inflation hits, people are able to buy a lesser amount of a commodity or service at the same price that they used to offer more of the same good. When people's income increases at a rate similar to that of inflation, handling the price rise of goods becomes easier. However, this is a rare phenomenon, as we notice our income rising at a significantly lower rate than inflation.

One needs to understand that the decline in purchasing power as a result of inflation is a temporary impact. The long-term effect of steady and lasting inflation can be noticed in someone's retirement savings or in any other kind of pecuniary plan. From a very basic level, the value of 100 HKD in 2024 will not remain the same in 2034, thanks to inflation. It means that 100 HKD in 2034 will not allow an individual to buy the same amount of goods or services that he or she can now. With inflation, the value of a currency diminishes over time, which can vastly impact anyone's retirement savings fund. People seldom make the mistake of not acknowledging the role of inflation while developing their retirement plans.

Nowadays, inflation has become the general public’s everyday companion. However, it is making their lives more difficult every day as the purchasing power keeps declining. The main cause behind this is a relatively slower increase in people's income. From a very foundational economic perspective, inflation ought to increase the interest rates of retirement savings. This viewpoint indicates that inflation is good for retirement savings, but there is an underlying influence of inflation on current lifestyle. People are constantly trying to cut down their daily expenses as the pecuniary value of currencies is declining, making them buy a smaller number of commodities at the same price that once allowed them to buy more of the same commodities. Therefore, when it comes to retirement savings, to sustain steady and strong earnings, one has to compromise on their existing expenses to save more for retirement savings. If you're unable to do so, it will take a toll on your retirement funds as you will only be able to enjoy the higher returns from increased interest rates if you keep up with making sufficient savings to fund the retirement portfolio presently. Undoubtedly, it is a tough task, and the majority struggle to keep up with it.

This makes it extremely necessary to consider current and future inflation rates when it comes to developing a lucrative retirement savings plan. Inflation affects all areas, including the costs of wellness services that we acquire from time to time when we fall sick. Additionally, there is the factor of unexpected events or emergency situations. Such unforeseen events can make us spend a lot more of our savings in a quicker span than one could ever expect. The culprit here is inflation. The same wellness service will cost a lot more during your retirement years than what it costs now. So, overall, the influence of inflation on anyone's retirement funds is immense, and only a cautious approach can enable people to sustain their desired lifestyles post-retirement, even under the influence of inflation.

Now that we have laid down the effects of inflation on our retirement funds, it is time to figure out how the public can effortlessly navigate their retirement life without any economic worry in the presence of inflation. Experts always suggest that every retirement plan holder should keep reassessing their daily expenses. This helps in different ways. When you have a track of your present daily expenses, you will be better capable of successfully balancing your necessary expenses and savings. You may cut down some of your leisure activities for the time being to support your retirement fund payments. A little compromise now can serve any retiree long-term during the golden years with more funds present as retirement savings. People also establish a backup plan for any unexpected expenses that may come along at any moment. This emergency fund will be helpful to meet your emergency needs without being worried about the inflation factor. The final dose to safeguard your retirement savings from inflation is to make your retirement portfolio as diversified as possible. With inflation-adjusted packages, your retirement portfolio will have more liberty to let your savings grow exponentially with the inflation rate.

Overall, inflation is a phenomenon that will stay with us forever, but the rate at which it dominates an economy varies each year. Allowing yourself to practice the solutions discussed here to handle inflation and still let your retirement savings grow can be of extreme help in remaining stress-free from any economic worries during the golden years.