As many know, inflation is the rate at which prices for goods and services increase, and consequently, the decrease of the purchasing power of currency. With a low interest rate environment, where the rate of inflation is higher than the rate of savings, a negative growth rate on savings and erosion of purchasing power can be seen. If not well controlled, this could potentially pose a threat to retirees.
During the retirement phase, many retirees would have liquidated a large portion of their investments to preserve capital. One must avoid over-weighting on high-risk investments and stick to lower risk, liquid or near-liquid investments to draw on to fund their retirement lifestyle, while maintaining a small portion of high-risk instruments for needed growth. If inflation is higher than the return generated, one will experience diminishing purchasing power.
By working longer, you will have a steady source of income, be kept occupied, and additionally your expenses may be reduced as some companies provide much-needed medical benefits.
The biggest mistake a retiree can make is to cash out all of his or her monies in one lump sum and leave it in the bank. The bank's low interest rate will not be able to offset the effects of inflation, thus reducing purchasing power in the long run.
You can do this by:
Borrowing interest on credit card facilities can be even more harmful than the effects of inflation.
This is your entitlement and will help to further stretch the value of your retirement payout.
The suggestions above are generally considered broad strokes to help you better understand and formulate the effects of inflation and your retirement. You are still advised to speak to a Wealth Planning Managers, who will be able to help you structure a customised retirement portfolio according to your unique risk profile and circumstances. With proper planning, good advice, discipline and diligence, you will succeed in retiring in good financial health.
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