How rising inflation could affect your lifestyle in retirement

April 19, 2022

For the past several years, it has been easy to believe that prolonged high inflation is a thing of the past. Like shoulder pads and mullets, many people thought that we’d left it behind at the end of the 1980s.

However, recent world events, such as the coronavirus pandemic and the war in Ukraine, have caused inflation to rise sharply in countries across the world.

During your working life, the rising cost of living may not affect you very much, as wages and earnings often increase in line with it. However, it can be a different matter when the time comes for you to retire.

In such an important chapter of your life, worries about money are the last thing you need, so read on to find out how inflation could affect your lifestyle in retirement.

The coronavirus pandemic and war in Ukraine have both contributed to rising inflation

In the past few months, the global economy has been shaken by two important events: the coronavirus pandemic and the war in Ukraine. The economic consequences of these have fuelled a rise in inflation across the world.

Since the initial outbreak in 2020, countries across the world have struggled to contain the virus and protect the vulnerable. However, despite governments’ best efforts, the pandemic has had a significant economic impact.

Due to the implementation of national lockdowns across the globe, there was a sharp decrease in the production of many consumer goods in 2020 and 2021.

However, now that the virus is starting to recede and economies across the world are opening up again, there has been a surge in the demand for these products. This, coupled with a reduced level of supply due to the pandemic, has caused prices to rise.

The war in Ukraine has also contributed to the increasing cost of living. Prior to the Russian invasion, the country was a major exporter of agricultural products, such as wheat and vegetable oils, meaning that the conflict has caused food prices to rise.

Furthermore, the western sanctions on Russia have also affected the price of fuel. This can contribute to inflation as it raises transport costs, which retailers then pass onto the consumer.

Inflation can pose a serious problem for your wealth in the long term

To put it simply, inflation erodes the buying power of your cash over time. If your money doesn’t keep pace with rising prices, then its value is slowly falling in real terms.

According to data from The Straits Times, the overall rate of inflation in Singapore in the year to February 2022 was 4.3%. This means that it would now cost you $104.3 to buy goods and services that would only have cost you $100 one year ago.

Of course, while this may not pose a problem in the short term, over the long term it might – especially if your income isn’t rising.

Thanks to advances in medicine and technology, life expectancies in developed countries are rising, meaning that you’ll probably have a much longer retirement than your parents or grandparents did.

Of course, this is something of a double-edged sword; while you’ll have more time to enjoy this important chapter of your life, your wealth will also need to support you for a longer period.

Over several decades, even a relatively low amount of annual inflation can quickly add up to reduce the buying power of your money. This can be a serious problem, as it means that you may not have enough wealth to enjoy your desired lifestyle throughout retirement.

Given that this chapter of your life is usually seen as a time to relax and enjoy the rewards of your hard work, this could be a troubling prospect. If you want to avoid the risk of inflation eating away at your retirement wealth, seeking professional advice can really help.

Working with a planner can help you to protect your wealth from rising inflation

One of the main benefits of working with a financial planner is that it enables you to make informed decisions with your wealth, based on up-to-date information. This can give you a greater sense of confidence when managing your money.

For example, if you’re concerned about the impact of rising inflation, a planner can help you to reassess your investing strategy to reflect this. If you want to outpace rising prices, you may need to reconsider your attitude to risk.

Alternatively, a planner may recommend that you reduce the amount of your wealth you hold in cash. Since it is typically more vulnerable to the corrosive effects of inflation, this can help to protect your money.

If you want to inflation-proof your wealth, working with a financial planner can help you to understand your options and make the right decision for your needs.

Get in touch

If you want to know more about how to protect your wealth from the impact of rising inflation, we can help. Fill in our online contact form to organise a meeting and we’ll get in touch.