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Keeping Retirement on Track Amid High Inflation

Keeping Retirement on Track Amid High Inflation

  • 25 November 2022
  • By OCBC
  • 3 mins read

How inflation hurts our retirement plans

Inflation erodes the value of our savings as higher prices mean we can afford less with what we have saved. Hence, inflation can be make a big dent in retirement plans and reduce the quality of our lifestyle in later years. While the recent high inflation numbers are alarming, it is unlikely to remain so over the next five or even ten years but we should still include inflation as a consideration for our retirement plan.

Curb inflation’s effects by making it a part of our retirement plan

Inflation can be managed within our retirement plan in three ways:

  1. Include inflation in retirement planning.
  2. Optimise existing assets, such as CPF, and hold assets that can benefit from higher inflation.
  3. Review your investment portfolio regularly and adjust when necessary.

Firstly, you must include inflation into your retirement planning. It will increase the amount you need to retire with, but it lets you enjoy the same spending power throughout your retirement years. For instance, if you decide that you will need $3,000 a month in today’s value for your expenses during retirement, then you need to account for how inflation will impact this amount at the time you retire, which may be many years ahead. You can use the OCBC Life Goals retirement planner to gauge this, as it uses the average inflation rate over the past 10 years in Singapore as a reference point in projecting your retirement goals and needs.

This also means that with more assets needed to retire, you may need to consider taking on more risk with your investment portfolio to achieve your goal or moderate your retirement expectations. Consider speaking with our Personal Financial Consultants to determine which is the best course of action to achieve your retirement goals.

Secondly, you can “inflation-proof” your investment portfolio by holding assets that can benefit from inflation, such as real estate investments, floating-rate/inflation-protected bonds and Gold . Investing across regions can also help to mitigate inflation risk through foreign currency movements.

Finally, review your investment portfolio regularly and adjust when necessary to ensure that you are on-track to achieving your financial goals.

Other common mistakes when making retirement plans

  1. Not recognising the need to plan for retirement – as the saying goes, “if you fail to plan, you plan to fail”.
  2. Relying solely on CPF for retirement – CPF LIFE pay outs may not be sufficient to maintain your desired retirement lifestyle.
  3. Not starting early enough – the longer your investment time horizon is, the less you will need to fork out now and the more time you will have for compounding to work on your investment portfolio. Younger investors may not be able to visualise retirement, or they put in as a lower priority compared to enjoying their spending power first. However, starting early means investors can set aside less investment funds per month to achieve their goals, as they have a longer time horizon to accumulate their retirement funds through investing.
  4. Underestimating your retirement needs – Setting a low-bar for your retirement income will result in a decline in the quality of your lifestyle. Apart from living expenses, you also need to provision for medical costs, the occasional wear-&-tear in your home and vehicle, as well as for ad-hoc spending such as holidays, dining out and everyday purchases.
  5. Not taking the right amount of risk – While a retirement plan should be tailored to your unique situation and preferences, investors should also be mindful about taking too much or too little risk when accumulating funds for retirement. Taking too little risk may result in you falling short of your goal, while taking too much risk may cause you sleepless nights and possibly incur more losses than you can stomach, thus falling short of your goal as well.
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