Tips to manage your retirement savings amid soaring inflation

 Highlights

• Inflation causes a loss of purchasing power over the time and subsequently turns a positive return into a negative one if it gets unusually high.
• Proper financial and retirement planning becomes very important amid an inflationary environment.
• Here are 5 tips for you to protect your savings and investments as prices are on the rise

Global supply chain disruptions, the ongoing war between Russia and Ukraine and the COVID-19 impact have led inflation to skyrocket in several countries. This has sparked concerns among retirees living on fixed incomes that inflation could disrupt their retirement plans.

Proper financial and retirement planning becomes very important amid an inflationary environment.

Annual inflation in NZ soared to 6.9% in the first quarter, registering the biggest hike since June 1990 and sparking concerns for the RBNZ to stay on a hawkish course. The RBNZ raised its OCR by 50bps to 1.5% this month to contain soaring inflation in the country. Food prices in NZ increased 7.6% in March as compared to previous year.

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Inflation causes a loss of purchasing power over the time and subsequently turns a positive return into a negative one if it gets unusually high. Retirees need a steady income stream during retirement. 

Here are 5 tips for you to protect your savings and investments as prices are on the rise.

1. Re-assess your portfolio

Stocks can give higher potential returns that can assist your portfolio to beat inflation. However, stocks also come with more volatility. Investors can allocate a higher part of their portfolio to stocks if they want higher returns but must be willing to take a risk as well.

Bonds may be avoided during inflationary times as central banks raise interest rates to combat inflation, resulting in lower bond prices.

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Putting money in ETFs, mutual funds, etc., can also be considered as they are very liquid, and the tax rate is considerably lower even if capital gains tax is taken into account.

2. Invest in gold and real estate

Commodity prices tend to rise with inflation and can be appealing to investors.

Conventional investment vehicles like gold and real estate have been considered as ideal hedges against inflation. However, investors must allot only a small part of their portfolios to these assets.

3. Do a budget review

Inflation can be quite tough for those who are nearing their retirement. Pulling out your investments faster than planned at the beginning of retirement can have a lasting impact on savings in the years ahead.

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You must account for rising prices in your budget to see where you are spending and where a cutback is required.

4. Consider Treasury Inflation-Protected Securities (TIPS)

Investors who remain worried about high inflation must consider Treasury Inflation-Protected Securities (TIPS). TIPS are bonds issued by the government and various mutual fund companies.

They are intended to index the principal value to the inflation rate. When inflation is on the rise, the principal value is adjusted higher, and the interest rate/coupon also increases, and the opposite happens when inflation falls.

5. Invest in yourself and keep working in retirement

Learning new skills through online resources or taking an advanced degree to grow your knowledge base can help you in securing your future and make you a vital employee.

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Moreover, it is best to preserve capital if you can keep working during your retirement. It does not have to be a regular 8-9-hour job, but one can do a part-time job or may provide consulting services to a new firm in that period.