What is inflation?
Inflation is the general increase of prices over time, which inevitably decreases your purchasing power.
What caused inflation to rise in 2022?
1)Cost-push – workers’ scarcity and shipping complications caused by covid-19 increased prices substantially. The war in Ukraine also contributed to rises in energy and food prices.
2)Demand-pull – many countries, including Cyprus, funneled large amounts of money to households and businesses during the pandemic, to ensure that they could manage lockdowns and layoffs. That, in combination with the fact that consumers had money that could not spend on restaurants or other services, increased dramatically the demand for physical goods.
3)Expectations – inflation is, in part, reflects in people’s expectations for prices. It is based on what people believe that inflation will be in the future.
As prices go up, inflation erodes the purchasing power of your retirement income.
Here are 5 tips to consider inflation when planning for your pension:
1)Factor in inflation when setting your retirement income: Determine how much income you will need during retirement to maintain your desired lifestyle, taking into account the impact of inflation.
2)Invest in assets that can provide inflation-protected income: Consider investing in assets that provide income that is tied to the rate of inflation such as real estate.
3)Diversify your investment portfolio: A diversified portfolio can help protect against the negative impact of inflation on certain assets.
4)Consider delaying retirement: Working longer can allow you to continue saving and investing for retirement, increasing your retirement income and helping to offset the impact of inflation. Remember that retirees tend to spend more of their money on services and products heavily impacted by inflation, such as healthcare, housing, and food.
5)Review and adjust your retirement plan regularly: As your circumstances and economic environment change, review and adjust your plan to ensure that it continues to meet your needs and financial goals.
I will be delighted to be able to help you plan or adjust your retirement plan during these unprecedented times.
Please feel free to contact me.
Ellada Palmyri