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Retirement & Inflation

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  • April 21, 2022

 

Inflation can have a significant impact on retirement savings, unfortunately many persons fail to properly account for it. In its simplest terms, inflation is the rise in prices of products and services that we use every day. When the cost of basic items like food, electricity, and transportation goes up, individuals and businesses simply can't buy as much as they could before. 

 

According to the Central Bank of the Bahamas inflation in 2021 was recorded at 5%. This means that $1 at the beginning of 2021 was worth around $0.95 at the end of the year. While virtually everyone could feel this decrease in purchasing power, it's especially impactful for those in or nearing retirement.

 

What Impact Will Inflation Have On Your Retirement?

Simple answer - if you’re on a limited or fixed income, as many retirees are, inflation can take a considerable toll on your lifestyle and your retirement savings. You may have the same amount of money coming in, but you can’t buy the same goods and services with it.

 

What Can You Do To Lessen The Impact Of Inflation?

 

Focus On What You Can Control

If you're a way out from retirement, the current increase in inflation shouldn't impact your retirement savings much since you'll be trying your best to avoid spending the money. One of the best things you can do is make sure you are investing your money to keep up with (and hopefully surpass) the inflation levels. If you are currently retired, you may want to consider cutting down on spending until inflation has slowed down and your purchasing power has increased.

 

Create Or Review Your Budget

Reevaluating your budget—or building one from scratch—is one of the best ways of identifying expenses that can be reduced or eliminated. It might not be the most exciting task, but it’s one that will give you a clearer picture of where you stand financially and how much you can truly spend without increasing your debt. A budget sets solid boundaries that empower you to live within your means—and pave the way for a solid financial future.

 

Control Your Expenses

Now is the time to review all your expenses and find the best solution to control your debt. The following are some ideas for you to consider:

  • Be smart about using credit cards. It might be tempting to ride out the inflation storm by accumulating credit card debt. Don’t do it. Credit card interest rates are already high, averaging just over 16%.

 

  • Delay major purchases if possible, including getting a new car or remodeling the house.

 

  • Purchase generic brands.

 

  • Use stamps/coupons in-store and online. You may get them as part of a retailer’s reward program or credit card. 

 

  • Save on energy by unplugging appliances when they are not in use. 

 

  • Rethink vacation plans.

 

  • Limit entertainment expenses.

 

  • Seek lower rates – credit cards, mortgages etc.

 

  • Live within or below your means.

The above is by no means an exhaustive list, we encourage you to find creative ways to reduce your debt and increase your savings.

 

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Retirees will need to consider adding equities or stocks

to protect against inflation.

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Reallocate Your Portfolio

Whether you are already retired or looking to retire in the next few years, to generate a real return from your investments, you must earn more than you’re losing to inflation (currently, that would mean earning more than 5%). Retirees will need to consider adding equities or stocks to protect against inflation.

 

Find Ways To Increase Your Income

Think about ways to increase your income, even if it’s for the short term, to get you through this current wave of inflation. If you’re already retired, that might mean, taking a part-time job or selling unused items. Maybe you can rent out a room on Airbnb. If you’re still working, did you get a raise this year? Was it enough to cover the rise in your cost of living? If your income didn’t increase by more than inflation, you effectively got a pay cut. You may want to consider asking for a bit more or a one-time bonus. If the answer is no, then improve your job skills or education to improve your job prospects.

 

In Conclusion

For those in or close to retirement its important to analyze the impact of inflation on retirement portfolios and when purchasing essential services. It's especially important to factor in projected price increases for necessities including food and healthcare. Our best advice is to have a detailed plan to make sure your funds keep up with rising costs and last throughout retirement.

 

If you need assistance, please do not hesitate to call a Retirement Advisor at RF. Ask questions and make sure the answers make sense to you. Get practical advice and act now.  You can call me at (242) 603 -6045 or email me Cleora.farquharson@rfgroup.com

 



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