How inflation might affect your retirement plans

February 3, 2023

Inflation can be a bit of a headache for people at all stages of life. But if you’re thinking about your retirement – whether you’re still firmly in the planning stage or getting a bit closer to it becoming reality – it can be an extra layer to prepare for.

How will it affect your spending when you stop work? Here are a few ways what inflation may affect your retirement planning, and what you can do about them.

Be wary of savings accounts going backwards

One of the big ways that inflation can interfere with your planning is that the value of your nest egg can go backwards, in real terms, quite quickly.

If you have $100,000 saved, for example, and inflation is running at 5% a year, your money will only be worth $95,000 the following year, in spending terms.

That means that your money needs to get a rate of return that is at least equal with inflation, just to keep your purchasing power steady. This can be quite tough in a high-inflation environment. And if you’re still accumulating assets for retirement, you probably want your money to be doing more than just standing still.

You’ll need to carefully assess any money that you have in things like term deposits and savings accounts to make sure it really needs to be there.

And when you get to retirement, you’ll probably need to retain this really careful approach to savings accounts, particularly if inflation is still high.

Get your investments working hard for you

If you don’t need to use the money soon, it may make sense to invest it in a managed fund or other investment that should deliver a higher return than you would get in the bank.

If you’re still some time away from retirement, you may well be doing this anyway. But while some people start to de-risk as they get closer to retirement, in a high-inflation environment you might choose to put this off.

The caveat to this is that often in high inflation environments, investment assets can be quite volatile. That means you’ll need to be willing and able to stick with some swings to come out the other end in a better position. This is the type of thing it can be really helpful to seek expert advice on from an investment adviser. We can help you work through your options and what could be a good fit.

Reassess your end goal

You might have worked out roughly what lump sum you need to have the kind of retirement you’d like. But inflation could change that.

A period of high inflation may mean that the costs you’re planning to cover in your retirement have increased, and you’ll need to put more aside to ensure you have enough when the time comes. You may also need to prepare for costs to keep increasing over the course of your retirement.

We can help you work through some of these numbers to determine whether your planned investment goal is still realistic, and think about whether you need to contribute more to get there.

Like to talk?

When things are a bit uncertain, it can make retirement planning a little more difficult. But having an adviser on your side can make all the difference. If you’d like to discuss your goals, and make sure you’ll be on track no matter what the economy does, drop us a line today. We are here to help.