Retirement planning is something that requires a great deal of thought and careful deliberation. Both your risk appetite and a ball-park prediction of what the economy may be like when you near retirement are both factors that have to be taken into consideration. When it comes time to dip into the money you’ve saved, you want to make sure that it’s kept its value, lest you find yourself dried up altogether.
There are always tried and trusted practices for how to go about planning for one’s retirement and accounting for one’s retirement portfolio, but COVID-19 has thrown a serious wrench in the gears, and you may find yourself in need of a serious reassessment and review suggests Richard Cayne of Meyer International in Bangkok Thailand.
Will COVID-19 influence inflation?
It’s undeniable that COVID has had a detrimental impact on more than just people’s health. From production sources to supply chains to consumer access, COVID has had a savage impact on nearly every industry. This can lead to inflation as a result of increasing prices, simply from supply and demand.
While this crisis rages on, many governments around the world have tried to ease the economic blow by putting measures into effect such as quantitative easing. This practice puts more money into circulation in the hopes of keeping the economy afloat. The downside is that quantitative easing has the potential to lower a currency’s value in the process, leading to inflation that occurs when prices shoot up to match the devalued currency in question.
Recently, global inflation rates have hovered around 3-4%, while most of the major economies have held steady at around 1%
Depending on the country, however, and as a result of COVID, economic experts are predicting inflation to rise by several percentage points in the not-so-distant future.
How does inflation affect retirement savings?
To many people, an inflation rate of 3% may not sound like a whole lot. If an item costs $1 this year, it’s only going to cost $1.03 next year. But imagine much larger numbers over a much longer stretch of time and you’ll begin to realize that those numbers add up. Your dollar this year is now suddenly only worth 97 cents next year. Now imagine it’s $100,000 dollars. You just lost 30 grand. See what I mean? At the time of this writing inflation is estimated to be 4 or 5% for the year 2021 so when you can only get 0.5% in bonds your running negative 3.5 or 4% for the year a scary though says Richard Cayne.
Allocating your retirement portfolio is strongly recommended by most retirement planning experts for this very reason. You have to be ready to at least match inflation rates each year in the unlikely event that they rise. Naturally, you want to see your nest egg actually grow, not just sit there and essentially barely hold onto its value at stagnation.
If and when a crisis like COVID arises, there’s generally a pretty significant period before the global economy fully recovers. So what’s someone in your situation to do?
Can you protect your retirement from COVID and inflation?
There are several things you can do to guard your savings as you make the transition into retirement. While it’s probably not ideal, you could always put off your retirement to work a little longer and save a little extra. Another route might be reallocation. Shifting your investments towards safer choices. Or even more aggressive ones, depending on how much risk you’re willing to take on.
One thing is for sure though….during times of uncertainty like the COVID-19 crisis, you need to know exactly what your options are and how you can utilize them to your fullest advantage.
The good news is that you don’t have to go it alone. A trusted financial expert like myself is here to help you navigate these dire straits. I’ve been working with retirees on their portfolios for decades. I’m here to help discuss the best strategies and analyze even the most severe of situations to ensure that you transition into your retirement fully protected and ready for whatever awaits you.
Richard has been involved in wealth management in Asia for over 25 years and has consulted with many high net worth Japanese families on innovative international tax and wealth management planning solutions.