Rising inflation has started to significantly impact retirement plans due to the shrinking real value of income earned. It becomes more necessary now to invest correctly to reap maximum returns for a secured post-retirement life. Our article will cover everything you need to know to decide on your retirement plan in 2022.
Inflation affecting your potential retirement plan
When individuals retire with a fixed retirement plan, growing inflation causes significant harm to the money they receive each passing month. As years pass and the retirement plan value remains the same, the growing inflation cuts down on the individual’s purchasing power, leading to earning less than they used to. This is why it becomes essential to ensure that your retirement income grows in real terms with respect to the growing inflation.
Four things to consider to drafting a retirement plan
1- Retirement timeline
A retirement timeline is one of the most important things to consider while drafting a retirement plan. This is because the later you retire, the less money you need to survive, and if you are someone planning to retire early like most of this generation, there are chances that you need a relatively higher amount as more years are added to your life, in which you do not earn any income but entirely depend on retirement income.
When planning on an investment strategy that will help in your post-retirement life, planning out the exact year when you want to retire helps in figuring out an approximate amount that you will need by the end of your employment journey.
2- Risk appetite
Risk appetite is another measure that helps in formulating a feasible retirement plan. Since all investments come with associated risks, it helps in understanding the extent to which you, as an investor, are okay for your expectations to deviate from reality. Establishing an acceptable risk level is helpful for a successful asset allocation. In most cases, wealth managers are the best risk analysers who assess the right level of risk and provide you with the options available to maximise your return on investments for a retirement strategy.
3- Do you have an asset that matches your retirement plan?
Asset values like real estate have increased to a considerable extent in the last few decades. This is why most people approaching retirement consider their homes as an asset which can come to use post-retirement. However, as valuable as the asset a home may be, it does not really provide investors with a continuous income unless they rent it out. This is why some investors approaching retirement consider downsizing their homes to gain some funds that they can invest and use post-retirement. Some investors also consider renting the property out and shifting to a closer, less expensive property to utilise the additional funds after they retire.
4- Level of readily available cash
The last thing to consider when devising a retirement plan is the level of cash you currently have. If you have a considerable amount of cash sitting idle, it is best advised to invest it in tangible assets that increase in value as inflation rises. Hard cash alone depreciates in value as inflation increases due to the loss in purchasing power. Consider the type of investment that suits you best to understand which real assets suit you best, or take the help of a specialist wealth manage. If you are someone who prefers income-generating investments, a blend of different mutual assets, equities, and bonds may be the right choice for you. However, if your focus is on capital growth, you can consider real estate as an asset class.
Concluding statement
It is visible that the growing inflation is cutting down on people’s purchasing power, posing a threat to retirement plans. If you plan properly and invest in the suitable asset classes today, you can protect yourself against the rising inflation that may eat up your hard cash’s value in the coming years, most people start planning their retirement around two years before they actually retire and that is one of the biggest reasons why the plan does not exactly turn out to be the way they want to. Planning well in advance, at least 5 to 10 years before you wish to retire, gives you enough time to plan and place your investments in the right direction that amplifies your cash’s worth and also provides you with a steady source of income that can be used post-retirement.
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