During retirement, the only thing that helps you survive is your retirement funds. However, suddenly finding out that the money that you have accumulated till now is worth much less than what it used to be can easily turn the sanest person mad.
This is the impact that inflation has on your savings. Many people have failed to deal with the negative effects of inflation. Some points that you need to know to avoid such circumstances are as follows:
Savings erosion
One of the biggest hazards of inflation is the erosion of savings. While inflation does not actually reduce the money you have, it decreases your purchasing power. Therefore, you are able to purchase less with the amount of money you have. Although you might get the cost of living raised from your employer, it is still not going to suffice as the rate of inflation will continue to increase. Also, your savings account will have the same amount of money with an interest rate that is lower than the rate if inflation.
Budgetary constraints
If your savings account does not look that good with the rising inflation, just imagine the state of your retirement funds, which would be much bleaker. You cannot expect to spend the same amount of money each year as you’d need to impose budgetary constraints once the booming inflation rates start hitting your retirement funds. You need to create smaller budgets every now and then to adjust according to the prevailing market conditions. These cost of living adjustments will ensure that you are able to buy the same goods and services with the amount of money you have.
The cost of medical supplies
One of the worst hit areas during inflation is the medical field. The rising cost of medical supplies and facilities is a sure shot rising concern for retirees. As your age increases, your body begins to lose immunity, which leads to various diseases and disorders. Therefore, the requirement of medical care is needed more during your retirement years. It is very important to consider the rising medical costs in your current budget and plan accordingly to deal with a crisis during retirement years.
Food prices
In the recent years, food prices have increased considerably due to inflation and various other factors like change in farming methods, livestock illnesses and drought. This is actually drilling a hole in the pocket of every individual. While every working person can easily raise their expenses a little, it is difficult for a retiree to do the same as they need to sustain on a fixed income with no perks, appraisals or bonus. The rising costs of food grains and meat products have been a concern for many people. Your income will not increase, but as the prices increase further day by day; you need to spend more to get the same amount of food that you were getting previously.
After knowing the impact of inflation on your retirement fund, it is imperative to know how to eliminate the effects of it. The below points would help:
Save with investment
It is recommended to reinvest the money that you have hoarded in your savings account. Even though the inflation hit financial market will not respond in the manner you want, it would still be fruitful. You can easily take some advice from a financial advisor to know where to invest.
Risk taking
An investment decision should be taken based on the analysis and advice of your financial advisor. It is better to keep your risks under control when it comes to investing. The financial market is known for its volatility and unpredictable behavior; therefore, it is best to stick to small investments if you are a first time investor.
Spend less
When inflation hits the market, you need to stick to a budget, especially if you are a retiree. Sticking to a budget will ensure that you are only spending what is required. Buying things that are beyond your limit will not prove to be a good decision during this period.
Inflation can leave a very bad effect when it comes to your retirement fund. To counteract it, you will need patience and control.
Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He regularly writes for blogs at MoneyForLunch, Biggerpocket, SocialMediaToday, NuWireInvestor & his own blog for Self Directed Retirement Plans & Rick Pendykoski. He writes about topics related to retirement planning, investing, and securing future. To learn more email Rick Pendykoski rick@sdretirementplans.com or visit his blog http://www.rickpendykoski.com/
