{"id":15203,"date":"2023-03-22T11:12:20","date_gmt":"2023-03-22T11:12:20","guid":{"rendered":"https:\/\/blog.researchandranking.com\/?p=15203"},"modified":"2023-06-15T11:58:18","modified_gmt":"2023-06-15T11:58:18","slug":"inflation-proof-investing-for-retirement","status":"publish","type":"post","link":"https:\/\/www.equentis.com\/blog\/inflation-proof-investing-for-retirement\/","title":{"rendered":"Best 4 Ways To Inflation-Proof Investing For Retirement"},"content":{"rendered":"
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Lingering cross-border tensions, high oil and commodity prices, sustained supply chain disruptions, heightened market volatility, and fears of a COVID-19-like pandemic pose an upside risk to inflation<\/a> and a downside risk to your retirement nest egg. However, for people with a fixed income post-retirement, making inflation-proof investing for retirement looks inevitable.<\/p>\n\n\n\n

If you, like millions of others, are working hard to build a retirement portfolio to ensure that money is available when you need it, this article is for you. Unfortunately, most of us make the same mistake regarding retirement planning<\/a>: we underestimate inflation. We ignore that sober-looking monster slowly devouring your savings before you can use them.<\/p>\n\n\n\n

This article will walk you through four ways of inflation-proof investing for retirement. Before we jump on to the ideas to offset the effect of inflation, let us discuss in brief what are the essentials of effective retirement planning.<\/p>\n\n\n\n

Plan For Retirement Effectively<\/h2>\n\n\n\n

Every job has an end date, whether by law, personal choice, or medical necessity, and your regular pay cheques will stop one day. However, just because you’ve retired doesn’t mean you must abandon the lifestyle or habits you’ve developed. With proper retirement planning, you can create an action plan that includes the right mix of investments<\/a> to ensure a lifetime of happiness.<\/p>\n\n\n\n

Before you start crunching numbers on your retirement goals, start planning for inflation-proof investing for retirement by determining your financial goals and the time horizons you have to achieve them, assessing risk tolerance<\/a>, etc. Saving is not enough in this case; you must also choose the suitable investment vehicles and take advantage of the power of compounding<\/a> to boost your money to be future-ready.<\/p>\n\n\n\n

You can make inflation-proof investing for retirement by following the well-established 4% rule. This rule allows you to withdraw 4% of your accumulated retirement corpus in the first year. Further annual withdrawals could be inflation-adjusted to provide a consistent and secure income stream. Let’s look at an example to see how this works.<\/p>\n\n\n\n

Say you have saved Rs. 1 Crore as your retirement corpus. Then in the first year, you may withdraw Rs. 4 lacs. Let us assume the inflation rate is 6%, and subsequent withdrawals from the second year onwards would be Rs. 4,24,000\/-   (Rs. 400000 * 1.06). If the inflation has decreased by 6%, then you can withdraw less than the previous year i.e. Rs. 3,84,000\/-(Rs. 400000*0.94).<\/p>\n\n\n\n

So, the tried-and-true strategy for building inflation-proof investing for retirement is to diversify your portfolio across asset classes, from equity to debt. Continue to rebalance your portfolio in response to rising age and inflation trends to make it more resilient to market volatility. As you get older and your risk tolerance decreases, shift your investment focus from capital appreciation to capital conservation, i.e. from equity to safe havens like bonds.<\/p>\n\n\n\n

4 Ways of Inflation-proof Investing For Retirement<\/h3>\n\n\n\n

According to the Ministry of Statistics and Programme Implementation, the average inflation rate has remained between 5 and 6% over the last nine years; it peaked at 12.2% in 2013 and fell to 1.5% in 2017. So, when it comes to retirement savings, you suddenly find that all that you save over the years through financial discipline starts to get eroded with inflation. How do you invest in things that will appreciate at a rate that matches inflation?<\/p>\n\n\n\n

Let us explore some simple yet effective ways to inflation-proof investing for retirement-<\/p>\n\n\n\n

1. Start Investing in Equity Market<\/h4>\n\n\n\n

When inflation unexpectedly rises, your equity portfolio may frequently move up or down in the short term. However, investments in fundamentally sound companies with strong cash flows have outperformed inflation over long periods. If you consider the long-term equity market returns and try to juxtapose this with inflation considering a long-term horizon, you will find your wealth compound.<\/p>\n\n\n\n

For inflation-proof investing for retirement, you can invest in mutual funds\/stocks in which the fund allocation is in sectors such as Gold, Commodities, Oil and gas, healthcare, consumer staples, etc, that are largely resistant to inflation or are beneficiaries of inflation.<\/p>\n\n\n\n

2. Invest in Indexed Inflation Bonds<\/h4>\n\n\n\n

Inflation Indexed Bonds (IIB) were introduced by the Reserve Bank of India in 2013-14 to hedge the Indian retail investors against market volatility causing fluctuations in inflation. IIBs were based on wholesale Price Index (WPI) movements. Consider the table below to understand how these inflation-indexed bonds designed to keep pace with inflation outperform regular coupon bonds during inflationary periods- <\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

3. Avoid hoarding too much cash<\/h4>\n\n\n\n

Having an emergency fund of three to six months’ expenses is life-saving. Still, it can injure your retirement plans if inflationary pressures are high, as inflation and savings do not work well together. Your cash holding starts losing its purchasing power and intrinsic value as inflation rises.<\/p>\n\n\n\n

So, in inflation-proof investing for retirement, avoid holding excess cash. Instead, consider it an investment opportunity to start putting the cash to use. Take advantage of the market touching correction territories and accumulate harder assets and fundamentally strong companies that tend to outperform inflationary periods.<\/p>\n\n\n\n

4. Rethink Your Expenses<\/h4>\n\n\n\n

Finally, one of the most common pieces of retirement planning advice is to optimize your savings and cut unnecessary expenses. This may be the easiest to follow, but it frequently requires the most coaching. Dig through your expenses to find the most valuable and fulfilling ones while cutting the rest.<\/p>\n\n\n\n

For inflation-proof investing for retirement, invest time in budgeting and curtail avoidable expenses that do not align with your core values. Begin living a minimalist lifestyle that you can comfortably maintain even after retirement. Reducing your expenses is the best way to combat inflation. A few lifestyle changes make a huge difference, like timely paying off your debts and other liabilities to be liability-free post-retirement, travelling in the off-season, avoiding overpriced luxury products, and doing detailed market surveys before buying any product.<\/p>\n\n\n\n

Key Takeaways<\/h3>\n\n\n\n

Since the average longevity increased by 0.33% from 2022 to 70.42 in 2023, inflation-proof investing for retirement planning has become pivotal. With inflation exceeding RBI expectations and reaching new highs, fears are growing that inflation will devastate your retirement corpus, which has been built up over years of financial hardship and discipline.<\/p>\n\n\n\n

So, to realize your dreams of spending your retirement years luxuriously, you must first defeat rising inflation. Your roadmap to inflation-proof investing<\/a> for retirement relies on how meaningfully you embrace the four ways we have suggested above to protect your retirement stash from inflation.<\/p>\n\n\n\n

FAQs<\/h2>\n\n\n
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Does inflation beat social security schemes like PPF, Senior Citizen Savings Scheme (SCSS), or Bank’s Fixed Deposit (FD)?<\/strong><\/h3>\n
\n\n

In the long run, social security schemes like PPF or other long-term schemes like SCSS or FD may give you good guaranteed returns, but the deposit yields no or negative real returns. Such schemes are not inflation protected despite giving assured returns. <\/p>\n

They fail to give consistent returns when inflation rises. Your corpus may grow, but the purchasing power of the money will be lower. However, if the inflation is below the guaranteed interest, these products may yield a positive real return. The National Pension Scheme (NPS), a long-term social security scheme, can be a good option if started early to build a hefty retirement corpus.<\/p>\n\n<\/div>\n<\/div>\n

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Which sectors are more resilient to rising Consumer Price Index (CPI) inflation, which significantly impacts commodity prices in India?<\/strong><\/h3>\n
\n\n

Some of the sectors that are historically more stubborn to CPI inflation and can potentially improve your yields during inflation include-
\u25cf\u00a0\u00a0Real Estate
\u25cf\u00a0\u00a0Energy
\u25cf\u00a0\u00a0Financial Companies
\u25cf\u00a0\u00a0Commodities
\u25cf\u00a0\u00a0Health Care
\u25cf\u00a0\u00a0Consumer Staples<\/p>\n\n<\/div>\n<\/div>\n

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Which companies should I invest in to beat inflation?<\/strong><\/h3>\n
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It is empirically proven through past phases of inflation that investing in companies with low capital needs to help you earn higher returns on capital invested. During inflation, companies with low capital needs can earn far better than those requiring more money to maintain their position.<\/p>\n\n<\/div>\n<\/div>\n

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Can investing in gold be part of inflation-proof investing for retirement?<\/strong><\/h3>\n
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Yes, gold is traditionally considered an inflation hedge because, unlike fiat currencies, it retains its purchasing power for longer periods of rising inflation. Alternatively, long-term investments in productive assets such as stocks, real Estate, or agricultural land, on the other hand, can generate dividends, rental income<\/a>, and food for their owners.<\/p>\n\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n\n\n

Read more: \u00a0How Long-term investing helps create life-changing wealth \u2013 TOI<\/a>.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

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