After battling Covid19, the world today is faced with a new type of threat - an all-out inflation pandemic! Every day, we hear news of prices soaring for even basic commodities, such as food and clothing, and many families struggling to make ends meet. Almost everything today is more expensive than it once was and that is due in part to inflation.
In this article, we will help you learn a thing or two about how you can protect your retirement savings against soaring inflation rates to ensure a comfortable post-retirement lifestyle and not have to worry about external economic factors eating away at your life savings.
Understanding Inflation & Its Potential Impacts On Retirement & Investments
What is inflation? In layman's terms, inflation is a measure of the percentage increase in prices over a specific period, usually a year.
Why does inflation occur? The most common reason for increased prices for products is due to high demand and low supply.
This is exactly what is happening globally after the Covid pandemic. As world economies stabilize the demand for goods and services is at its peak and the supply hasn’t caught up to the demand. This has resulted in the increased everyday cost of living, which in turn has limited one’s ability to save - directly impacting retirement goals.
In times of hyperinflation, prices for products can rise drastically in a short period which can have severe negative impacts on your finances and limit your ability to save for the future.
According to Canada’s affordability index, due to the rise of inflation in 2022, 60% of Canadians managed to save less money for retirement in 2022 than in 2021. So the impact of inflation on retirement savings can be profound.
If you think about it, a $100 bill in 2020 was worth a lot more than a $100 bill in 2023. You could buy more things with the same amount of money you had then. To get the same amount of goods now you will have to spend $150 and that means you will have less money to save.
Investments work the same way. For example, if you bought stocks worth $10,000 in 2020 and today the value of those stocks is still at $10,000 you may think you are at the very least breakeven on your investment. However, that is far from true. Taking into account inflation, your investment is at a loss, as $10,000 in 2020 was worth a lot more than it is worth today.
Rising inflation also hurts individuals that are nearing retirement or are already retired the most. The rising cost of living means that retirees will need more money than they originally planned to live out their intended retirement lifestyle.
As a result, many Canadians that are close to retiring are considering pushing their retirement back another couple of years just to make sure they have enough money to outlive their retirement.
Strategies To Help Protect Your Retirement Savings From Inflation
Diversify Your Investment Portfolio
The best way to tackle the problem of rising inflation is to diversify your investment portfolio and invest across different asset types, such as stocks, bonds, and liquid cash assets such as gold.
By diversifying your investments you are essentially reducing the amount of risk you take and giving yourself the best chance to protect against external factors such as inflation, recessions, and stock-market collapses.
Purchase Inflation-Protected Securities (TIPS)
TIPS are a type of bond investment that offers protection against rising inflation. This type of security is different from a conventional bond. It offers a fixed-income stream that is indexed to inflation, which means that even though the returns remain the same, the security's principal amount is adjusted to account for inflation, thus protecting investors from a decline in the purchasing power of their money.
TIPS are considered low-risk investments and can be great options for investors who are concerned about rising inflation rates depleting the value of their investment portfolio.
Consider Alternative Investments
The more you diversify the less risk you take. Alternative investments are a great way to further diversify your portfolio by moving away from traditional investments in bonds, stocks, and cash to alternative investments such as buying art, classic cars, gold and other precious metals, real estate, private equity, cryptocurrency, etc.
Adjust Spending & Savings Habits
To predict the future is impossible. As such, it is always best to adapt and change your financial plans according to your current economic and financial situation.
If rising inflation has left you with less money to save, you will either have to earn more money or reduce the amount of expenses to keep up with achieving your retirement goals.
Work With A Financial Advisor
Adapting and changing your financial plans or goals can be challenging and a time-consuming process. This is why working with a financial advisor can be extremely beneficial in ensuring that you know exactly what you need to do to remain on track to achieving your financial goals.
Financial advisors can guide you on how to diversify your investments, what investment opportunities to consider based on your risk tolerance level, and what investment pitfalls to avoid based on your current finances.
Advisors can be the key to ensuring your retirement savings stay protected and continue to grow year by year despite rising inflation or economic recessions.
Grow, Protect, Save, Adapt, & Give With Eastport Financial!
If you are seeking retirement planning experts in Halifax, NS, look no further than Eastport Financial. With over 20+ years of prowess and countless satisfied clients, we pride ourselves on taking a collaborative and holistic approach to helping our clients achieve their financial goals.
At Eastport Financial Inc., our Canadian Tax Planning professionals are dedicated to preserving the wealth and assets of Canadian families and have helped so many clients achieve and in some cases surpass their life, investment, and retirement goals.
To learn more about how we can help protect your retirement savings from the negative impacts of rising inflation give us a call at 902-474-5433 or email us at info@eastportfinancial.com.
